Three Things We Are Watching
Big tech Artificial Intelligence (AI) spending. Several US cloud giants missed earnings estimates in the third quarter (Q3), each for its own reasons. Importantly, their future spending plans did not change. Together they expect to spend more than US$870 billion on capital projects in 2026 and US$ 1.3 trillion in 20271. Their push to rapidly build advanced AI models has boosted sales of Asian chip makers. As chip demand is higher than supply, these firms have raised prices. Smaller data-centre firms are finding it hard to raise capital, and they may have to cancel orders. US cloud giants are likely to take over that capacity because they expect strong future demand. This is good news for Asian chipmakers, who report their output is sold out through 2029.
Brazil’s election surprise. Luiz Inácio Lula da Silva, known as Lula, won the presidential runoff, which few expected. Brazilian stocks fell sharply in response to the win. Investors now expect interest rates to rise, not fall, which makes borrowing more costly for firms. The outlook for the currency has also worsened. The selloff may create individual stock opportunities. We are looking at company strength, debt levels, cashflow and the ability to handle shocks. We prefer exporters and commodity firms, because a weaker currency can boost their earnings.
Emerging market (EM) earnings. A majority of emerging market firms have now reported Q3 results. Analysts expect profits to be 70% higher than a year ago.2 The technology-heavy North Asian markets are again expected to lead. We are watching for strength in other sectors and in countries outside North Asia. Better-than-expected results there could lift share prices and spread gains across more markets and sectors in the coming months.
Market Review
EM stocks fell in October as technology stocks came under pressure again. Investors questioned whether heavy AI-related spending would produce adequate returns. Rising interest rates also increased concerns about how this investment would be financed.
The emerging Asia region declined, with most major markets recording losses. South Korean semiconductor stocks were particularly weak. Indian equities rose. The country’s information technology companies performed well as investors moved away from AI infrastructure stocks and into software services businesses. Coordinated drone and missile attacks against Saudi Arabia weakened sentiment across the Middle East. Mexican equities rose despite inflation concerns.
Outlook
We remain constructive on EMs, but believe a selective approach is key. Higher US interest rates and a stronger US dollar may cause volatility. Even so, many EM companies are in a sound position to cope with higher rates. Many of our portfolio companies have low debt, strong cash levels and some earn revenues tied to the US dollar.
We are watching AI spending closely, as higher yields could raise the cost of future investment. Overall, our approach remains unchanged. We focus on company fundamentals and long-term growth. This discipline helps us seek opportunities while managing risks in a market shaped by rates, AI spending and uneven growth.
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Endnotes
- Source: S&P Global. Hyperscalers: Alphabet, Amazon, Microsoft, SpaceX, Meta, Oracle. Data as of August 2026
- Source: Goldman Sachs. Data as of October 30, 2026.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.