Seeking Alpha·2026-02-12 15:15Market and Performance Overview - Emerging markets advanced 4.7% in Q4 2025, finishing as one of the best-performing global equity asset classes, with the MSCI Emerging Markets Index rising 33.6% for the year, outperforming the MSCI EAFE Index (+31.2%) and the U.S. S&P 500 Index (+17.9%) [2] - Performance in Q4 was led by Korea and Taiwan, with Korean equities soaring 27.3% driven by a 50% gain in the IT sector, while Taiwanese stocks climbed 10.4% due to AI-related momentum [3] Sector Performance - The IT sector gained 16.4%, bolstered by AI-related stocks, while the materials sector advanced 11.6% as gold prices rose over 10% and copper prices hit record highs [6] - Energy, financials, and industrials sectors outperformed the index, while consumer discretionary, communication services, health care, and real estate underperformed [6] Company Highlights - SK Hynix saw its shares soar over 80% in Q4 and nearly tripled for the year due to increased demand for DRAM and NAND memory, particularly for AI workloads [7] - Samsung Electronics also experienced strong performance, benefiting from memory shortages that enhanced pricing power [7] - Taiwan Semiconductor, a leading manufacturer of high-end chips for Nvidia, significantly outperformed the benchmark [7] Regional Contributions - Significant contributors included China's Sieyuan Electric and Korea's HD Hyundai Electric, supporting AI data center buildouts [10] - Capitec Bank in South Africa delivered strong financial results, while Titan, an Indian jewelry retailer, showed encouraging performance despite India's overall underperformance [10] Detractors - Alibaba and Tencent surrendered gains due to a broader rotation out of China, while Contemporary Amperex Technology also faced declines [11] - MercadoLibre remained weak amid competition concerns in Brazil, and Apollo Hospitals detracted due to its large portfolio weight in a lagging Indian market [12] Portfolio Positioning - The strategy added four new positions, including Raia Drogasil and Nu Holdings in Brazil, while exiting positions in B3 S.A. and Proya Cosmetics [13][14][17] - Upgraded exposure in Indonesia by replacing PT Bank Rakyat Indonesia with PT Bank Central Asia, which has a strong deposit franchise [15] Outlook - The emerging market recovery is viewed as being in its early stages, with appealing valuations and supportive macroeconomic drivers [18] - Anticipated increased foreign investments into EM equities, driven by lower valuations and stronger economic growth [19] - The Chinese economy shows signs of increased stability, with improved trade relations and a more optimistic outlook [20] - Emerging markets offer opportunities in world-class companies with technological innovation, particularly in sectors like industrial automation, e-commerce, and fintech [21] - India remains a focus due to its large population and status as the fastest-growing major global economy, despite challenges faced in 2025 [22] Portfolio Highlights - The ClearBridge Emerging Market Strategy outperformed its benchmark in Q4, with gains across five of the nine sectors invested [23] - Stock selection in IT and industrials sectors contributed positively, while communication services and an underweight in materials detracted from performance [24] - Leading contributors included SK Hynix, Samsung Electronics, and Capitec Bank, while Tencent, Alibaba, and MercadoLibre were primary detractors [25]