AI capex fuelling strongest EM earnings in two decades, MS says

Core Insights - Emerging-market stocks are experiencing their strongest earnings growth since the 2002-04 super-cycle, driven by a surge in artificial intelligence investment [1] - This growth contrasts sharply with the previous decade, where earnings estimates were typically revised lower [1][2] Earnings Growth and Concentration - Earnings estimates for the MSCI Emerging Markets Index have risen by an average of 6.5% for this year, primarily driven by three companies: Samsung Electronics, SK Hynix, and Taiwan Semiconductor Manufacturing [3] - The concentration of earnings upgrades in the semiconductor sector raises concerns about rising concentration risk within the asset class [2][7] Market Outlook - Morgan Stanley has raised its year-end target for the MSCI Emerging Markets Index to 1,700 from 1,400, indicating a potential 5% gain from the recent close [5] - The firm projects earnings per share for the index to reach $118 by December 2026, representing a 33% year-on-year increase, followed by $131 in December 2027, an 11% increase [5] Regional Performance - Despite the overall earnings upswing, China's reporting season remains muted, with weak domestic demand affecting major tech firms like Baidu, which has reported three consecutive quarterly revenue declines [6] - In contrast, India is showing early signs of recovery in corporate profits, indicating a divergence in performance among emerging markets [6]