While structural headwinds continue to buffet China’s economy, the iShares MSCI Emerging Markets ex China ETF is charting a different course, propelled by a powerful global trend. The insatiable demand for semiconductors, particularly those enabling artificial intelligence, is driving performance in developing economies outside the world’s second-largest nation. This raises a pivotal question for investors: how durable is this rally given the fund’s significant tilt toward the technology sector?
Attractive Valuations Amidst Momentum
Despite a recent pullback, the fund’s longer-term trajectory remains compelling. It recorded a slight decline yesterday, with its net asset value (NAV) dipping 0.24% to $84.01. However, its year-to-date gain of 15.86% tells a more positive story. This strength is not merely a short-term spike; many emerging market equities continue to trade at historically attractive valuations, especially when compared to their US counterparts. A persistent discount, coupled with ongoing corporate governance reforms in key markets like South Korea and Taiwan, is bolstering international investor confidence and could support continued capital inflows in the months ahead.
The Semiconductor Engine
The core driver of this performance is the ETF’s substantial allocation to the technology industry, which constitutes nearly 40% of its portfolio. This strategic positioning directly taps into markets reaping the benefits of the current technological cycle. Behemoths such as Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics, and SK Hynix sit at the heart of global AI supply chains. Specialized demand for components like High-Bandwidth Memory (HBM) has led to robust order books and expanding profit margins for these memory chip leaders.
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Market researchers forecast that corporate earnings in these emerging economies could expand by more than 20% by 2026. This optimistic outlook is underpinned by expectations for a softer US dollar and more favorable global financing conditions. As the semiconductor industry forms the backbone of the ongoing digital transformation, these companies are positioned as primary beneficiaries of massive infrastructure investments worldwide.
Looking Ahead: AI as a Catalyst
The future path of this ETF is intrinsically linked to the scale of global AI infrastructure spending, which is projected to surpass the $650 billion mark by 2026. For investors seeking targeted exposure to the technological growth story within emerging markets—while deliberately avoiding the specific risks associated with the Chinese market—the fund presents an efficient vehicle. With a total expense ratio of 0.25%, it remains a cost-effective option for this strategic allocation.
The concentration in tech, while a current strength, also frames the central investment consideration: the sustainability of growth hinges on the longevity of the global semiconductor boom and the continued proliferation of AI applications across industries.
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