Emerging markets beyond China: capturing the next generation of growth

The most visible shift is the reduction in consumer technology: a sector that increasingly faced headwinds from regulatory uncertainty, deflation and overcapacity in China, and hence carries far less weight in the ex-China universe. Consumer discretionary and, to some extent, financials also step back.
What comes forward instead are the two themes that are central to the ex-China growth story. First, the technology revolution: Taiwan and South Korea move to the heart of the portfolio, representing the semiconductor and hardware infrastructure on which global AI and digital transformation depend. Second, the demographic dividend: India, Brazil and the ASEAN economies bring a completely different profile — young populations, rising consumption, financial systems still in early stages of development.

Excluding China may allow these two structural growth stories to have the space they deserve.

We live in an interconnected world, and it would be naive to suggest that EM ex-China equities are somehow insulated from developments in China. As the world’s second largest economy — its gravitational pull is real. But there is a difference between indirect exposure and direct risk, and that distinction matters. Direct risk comes from policy, regulation or domestic cycles; indirect exposure is more about trade and demand. We are comfortable with the latter, but more cautious with the former.

Within Asia ex-China, one of the key shifts we are focusing on is supply chain diversification. Companies are no longer comfortable with single-country dependence, and manufacturing is gradually spreading across India, Indonesia, Vietnam. It’s not just about low-cost production anymore — these economies are moving up the value chain, supported by infrastructure and policy.

AI remains an important area of focus, particularly at the infrastructure level. Not just semiconductors, but everything around it: energy, grids, data centres, the physical backbone needed to make AI work at scale. Taiwan and South Korea sit right at the centre of that ecosystem, and it’s a global story more than a regional one. On the software side, we’re still waiting to see clearer monetisation before getting more involved.

We are also warming up again to renewables and alternative energy, as we believe higher energy prices may only accelerate the energy transition. That space has been out of favour since the 2022 rate cycle, but things are starting to stabilise. On India, we haven’t changed our stance. A lot of investors have become more cautious, focusing on valuations or a slowdown in services. We’re looking elsewhere — manufacturing, infrastructure, financial inclusion, consumer upgrade, healthcare amongst others. There is still plenty to do if you look beyond the obvious.

And it’s not just about Asia. Markets like Brazil and Mexico bring something different to the table — different cycles, different drivers, and in Mexico’s case, a clear link to nearshoring. It helps balance the overall exposure.

We’re also watching smaller but critical themes as they emerge — nuclear and waste management being couple of examples. On the other side, what we avoid is very deliberate. As an Article 9 strategy — still relatively rare in the “Ex-China” space — oil and gas, carbon-heavy infrastructure and certain metals are excluded. More broadly, we stay away from areas that are too dependent on China’s cycle or where overcapacity is an issue. Software, for now, remains on the sidelines until things become clearer.

Together, LatAm (Latin America) and EMEA (Europe, the Middle East, and Africa) represent a healthy mid-to-high teens allocation — and they do exactly what good diversification should: they bring an entirely different economic texture to a portfolio otherwise anchored in Asian technology. Latin America is a mix of long-term structural stories and tactical opportunities that reward patient, selective investors. Brazil in particular has some genuinely interesting utility companies that tend to fly under the radar. Financials are a key component, offering access to underpenetrated banking systems with strong profitability dynamics. And despite investor scepticism and the noise around political change, we believe the proximity to the US will continue to generate real spillover growth effects across Latin American economies — nearshoring is not a story that stops and starts with election cycles. In EMEA, the themes we find most interesting are renewables and financial convergence in eastern European banking — both of which are still in early innings and carry meaningful upside as capital allocation in the region catches up with the opportunity.

What LatAm and EMEA ultimately bring is balance: more domestically driven growth, greater exposure to financials, infrastructure and telecoms, and less reliance on the global technology cycle. They don’t replace Asia — but they make the overall portfolio more diversified and resilient.

At Candriam we have been managing EM Equities since 1994, and this is the latest addition to our range, launched in March 2024, classified as an Article 9 strategy under SFDR. It follows our established emerging markets investment philosophy, focused on identifying companies with sustainable quality growth supported by strong fundamentals and long-term structural themes.