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Semiconductor Power Drives EM Outperformance
Market and Efficiency Overview
Rising markets superior 4.7% within the fourth quarter to complete the 12 months as one of many best-performing international fairness asset courses. The benchmark MSCI Rising Markets Index rose 33.6% for 2025, outpacing the developed market MSCI EAFE Index (+31.2%) and handily outperforming the U.S. S&P 500 Index. (+17.9%).
Inside the benchmark, contribution to efficiency within the fourth quarter was led by Korea and Taiwan, which offset weak point in China. Korean equities soared 27.3% within the quarter, led by a 50% acquire for its data know-how (IT) sector, whereas AI-related momentum helped Taiwanese shares climb 10.4%. Power in valuable metals lifted South Africa 14.1%, whereas India — rebounding from weak efficiency all through 2025 — carried out in step with the benchmark. China, in the meantime, declined 7.4% on account of revenue taking amongst its largest know-how corporations after a powerful first three quarters of the 12 months, in addition to continued softness in client spending. One other notable detractor was Saudi Arabia (-7.6%) on account of falling oil costs and lingering unfavorable sentiment towards the Center East.
Exhibit 1: Rising Markets Outperformed U.S. in 2025
Information as of Dec. 31, 2025. Supply: FactSet.
From a sector standpoint, AI-related shares continued to thrive, lifting IT to a 16.4% acquire, whereas the supplies sector superior 11.6% as gold costs rose greater than 10% throughout the quarter and copper costs hit file highs. The vitality, financials and industrials sectors additionally outperformed the index, whereas client discretionary, communication companies, well being care and actual property corporations underperformed.
The ClearBridge Rising Markets Technique outperformed the benchmark on each a quarterly and full-year foundation, boosted by power amongst our IT holdings. Korean semiconductor maker SK Hynix (HXSC.F) soared greater than 80% within the fourth quarter and practically tripled in worth for the 12 months on accelerating demand for its DRAM and NAND reminiscence, significantly high-bandwidth reminiscence merchandise used for AI workloads. Shares of Korean reminiscence competitor Samsung Electronics (SSNLF) had been additionally up strongly over each intervals as reminiscence shortages enabled stronger pricing energy. Each corporations are among the many Technique’s high 5 holdings. Our largest place, Taiwan Semiconductor (TSM), benefited from its place because the main producer of high-end chips for Nvidia (NVDA) and different high semiconductor designers, additionally meaningfully outperforming the benchmark for each the quarter and the 12 months.
Exhibit 2: World DRAM Market Dominated by Korea
Information as of March 31, 2025. Supply: Counterpoint.
Different vital contributors included China’s Sieyuan Electrical and Korea’s HD Hyundai Electrical, industrial holdings supporting AI knowledge middle buildouts and energy necessities, as East Asia continues to achieve share in international AI provide chains. Capitec Financial institution, a retail banking and insurance coverage supplier, delivered sturdy monetary outcomes amid a supportive setting in South Africa, and Titan, an Indian jewellery retailer, produced sturdy outcomes with bullish feedback from administration in its newest quarterly launch. We view Titan’s efficiency as encouraging for an Indian market that considerably underperformed the broader benchmark in 2025.
Alibaba (BABA) and Tencent (TCEHY) , two of the biggest names within the Chinese language fairness market, surrendered features as a part of a broader rotation out of China after sturdy efficiency earlier within the 12 months. Chinese language battery provider Modern Amperex Know-how (CTATF)(CATL) was additionally down, with its excessive lively weight within the portfolio weighing on relative efficiency. Nonetheless, we imagine that every of those corporations stays basically sound and nicely positioned because the world’s second largest economic system works via a progress slowdown.
Latin America e-commerce platform MercadoLibre (MELI) remained weak on account of issues over the funding stage wanted to fend off growing competitors in Brazil. Apollo Hospitals and ICICI Financial institution (IBN) additionally detracted on account of their massive lively portfolio weights in an Indian market nonetheless trailing the broader power throughout rising markets.
Portfolio Positioning
In the course of the quarter, the Technique added 4 new positions and closed out of three others.
Brazil was a spotlight of exercise and included new positions in pharmacy operator Raia Drogasil (RADLY) and fintech firm Nu Holdings (NU). Raia Drogasil is a high-quality firm trying to reaccelerate income after investing within the enterprise, incorporates a excessive return on capital and is a main beneficiary of GLP-1 demand in Brazil. Nu Holdings, which has develop into one of many main banking disruptors in South America via its choices of digital banking, credit score and pay as you go playing cards, is driving long-term progress via enlargement of merchandise and markets. In the meantime we exited our place in inventory alternate B3 S.A. – Brasil, Bolsa, Balcão, which has been a beneficiary of accelerating buying and selling. Capitalizing on its sturdy returns in 2025, we elected to exit the place and redeploy property into areas we imagine have larger return potential.
We upgraded our Indonesia publicity, changing PT Financial institution Rakyat Indonesia (BKRKY) with PT Financial institution Central Asia (PBCRF), Indonesia’s main non-state-owned financial institution. Rakyat’s micro enterprise, its most worthwhile phase, has confronted asset high quality and progress challenges that we imagine will take longer to get better than is presently embedded in market expectations, which might stress the enterprise’ profitability and returns. PT Financial institution Central Asia, in the meantime, has one of the best deposit franchise in Indonesia, and we took benefit of a selloff within the area over the past 12 months to buy this high-quality enterprise at a horny valuation.
We additionally initiated a place in Harbin Electrical within the industrials sector. We imagine that energy era is a key international theme and China will play a major position. Nuclear is a re-emerging space of funding and Harbin is a key provider of kit to this business. We anticipate that the corporate will develop revenues and improve its profitability for a long-term, sustained interval.
Our different sale was Chinese language client staples firm Proya Cosmetics. After beforehand benefiting from market share features in its residence market, Proya has seen deterioration within the progress of its enterprise on account of elevated competitors from different international cosmetics and skincare manufacturers.
Outlook
Following a protracted interval of relative underperformance versus developed markets, we imagine the EM market restoration is at an early stage. Valuations are interesting, international macroeconomic drivers are supportive and native structural and company-level alternatives all level towards vital upside potential for the asset class.
Worldwide asset flows are additionally essential in driving costs for EM markets. The chance supplied by decrease valuations, mixed with stronger financial progress and bettering investor sentiment, creates a virtuous cycle attracting elevated international capital flows. This, in flip, additional enhances potential funding efficiency. We’re nonetheless at an early stage on this course of and anticipate elevated international investments into EM equities over the approaching years. We’re bullish on three main themes within the 12 months forward: China, know-how and India.
The Chinese language economic system has begun to display elevated stability, with commerce tensions easing, exports remaining sturdy and a usually extra optimistic outlook rising. Our earlier perception that China wouldn’t separate a lot from the worldwide economic system has confirmed true, as relationships have improved and buyers have regained confidence.
EM provides the chance to put money into world-class corporations with cutting-edge technological innovation, with many of those corporations benefiting from substantial funding in analysis and improvement and mental property creation. EM tech is finest identified for offering publicity to key international provide chain parts for tech {hardware}. Tech funding could be discovered throughout industries; we see alternatives in areas reminiscent of industrial automation, e-commerce and fintech, in addition to technological development driving elevated international energy demand amid the expansion of AI knowledge facilities and wider electrification of the economic system.
2025 was a difficult 12 months for Indian equities after a pointy valuation pullback following the 2024 election, unfavorable financial progress revisions and client softness. Nonetheless, the long-term funding case stays strong: India provides nice upside potential because it advantages from a big and younger inhabitants, and it stays the fastest-growing main international economic system, with actual GDP progress of 6.6% in comparison with 4.2% for EM total.
Portfolio Highlights
The ClearBridge Rising Market Technique outperformed its MSCI Rising Markets benchmark within the fourth quarter. On an absolute foundation, the Technique produced features throughout 5 of the 9 sectors wherein it was invested (out of 11 complete). The first contributor was the IT sector whereas the principle detractors had been client discretionary and communication companies.
Relative to the benchmark, total inventory choice and sector allocation contributed to efficiency. Specifically, choice within the IT and industrials sectors and an obese to IT drove outcomes. Conversely, choice in communication companies and an underweight to supplies detracted from efficiency.
On a regional foundation, inventory choice in Korea, China, Taiwan and Brazil and an underweight to China contributed to efficiency whereas choice in Indonesia and Mexico proved detrimental.
On a person inventory foundation, the main contributors to relative efficiency had been SK Hynix, Samsung Electronics, Sieyuan Electrical, Capitec Financial institution and never holding Xiaomi. The first detractors had been Tencent, Alibaba, CATL, MercadoLibre and Apollo Hospitals.
Paul Desoisa, CFA, Portfolio Supervisor
Colin Dishington, CFA, Portfolio Supervisor
Andrew Mathewson, CFA, Portfolio Supervisor
Divya Mathur, ASIP, Portfolio Supervisor
Alastair Reynolds, ASIP, Portfolio Supervisor
Paul Sloane, ASIP, Portfolio Supervisor
Aimee Truesdale, CFA, Portfolio Supervisor