Investors remained captivated by the AI capex cycle through a July selloff in tech hardware names across North Asia. A parabolic rally in tech hardware stocks controlling bottlenecks in the AI supply chains was followed by a sharp correction during the month. Pundits ascribed market jitters to concerns that hyperscaler capex may be curtailed, reflecting speculation that returns from investment in the technology might be less than compelling.

Second-quarter results from the megacap US tech companies flew in the face of these fears, with firms broadly reporting robust earnings growth in cloud computing services and hinting at healthy returns from their bets on AI. However, doubts are creeping in over whether earnings upgrades can be sustained, adding to concerns over the rising use of debt to fund the capex boom and the competitive threat posed by cheap open-source Chinese LLMs to more expensive frontier model providers in the United States.

Hyperscaler capex estimate by year (USD bn)

Source: Mizuho Securities Equity Research, July 2026.

Artificial Analysis Index – higher is better

Source: Artificial Analysis, August 2026.

Fragile liquidity backdrop

In our view, these risks were well understood before the sell-off. The unwind may instead have been driven by a deterioration in the global liquidity backdrop and an associated deleveraging in crowded trades. NS Partners Chief Economist Simon Ward flagged the risk early in the month (A “monetarist” perspective on current equity markets):

“Global six-month real money growth has fallen back since early 2026, crossing below industrial output expansion in April (see below chart). This suggests that the global economy will lose some momentum during H2, while the monetary backdrop for markets has become less favourable, at least temporarily.”

G7 + E7 industrial output & real money (% 6m)

Source: NS Partners & LSEG Datastream.

South Korean retail speculators driving parabolic rallies in AI hardware winners added to the vulnerability, with the correction appearing to coincide with systematic quarter-end repositioning. This triggered weakness in “speculation of choice” names that fed deleveraging and forced selling. According to Citi, more than 360,000 South Korean margin accounts were forced into liquidation with 62% of those individuals wiped out under the age of 35.

Leverage in South Korea

Source: Jefferies Equity Research, July 2026.

We had been trimming our AI exposure into the event, but in hindsight we should have been more aggressive ahead of what was the largest pullback in Asia momentum since 1999.

Asia Momentum (L/S) – monthly performance

Source: Bernstein Equity Research, August 2026.

Little has changed by way of the growth and profitability drivers of our tech hardware companies in Taiwan and South Korea

For example, TSMC is forecast to generate 30% EPS in 2027 with a gross profit margin of over 55% and trades on a PE of 15.8x 2027 and 12.7x 2028. Elsewhere in Taiwan a number of companies in the tech hardware supply chain continue to deliver EPS upgrades, with the recent de-rating providing some attractive entry points.

In South Korea, DRAM giant Samsung Electronics reported record revenues and operating profits for the quarter with the latter beating estimates driven by exponential growth in AI server demand. The company expects supply constraints to tighten further in 2027 despite investments in supply. The company has no debt and trades on a free cash flow yield of c.16% for 2026, with a PE of 3.1x for 2027 and 2.9x for 2028. We anticipate that the company will announce a shareholder return plan for c.50% of FCF in August including a special dividend, which should provide some support for valuations and reduce capital misallocation concerns.

Caveat: TSMC and the memory giants are very different beasts

TSMC is the monopoly in advanced semiconductors that power all of the latest technological innovations, boasting structural competitive advantages that underpin lower earnings volatility through customer lock-in. While the dominant memory companies SK Hynix, Samsung Electronics and Micron exist in an oligopolistic industry enjoying a demand supercycle powered by AI spending, they remain at the mercy of severe supply-demand swings. Although we expect this memory cycle to go on longer than most expect, nothing cures high prices like high prices.

Tech monopoly vs. memory super cycle

Source: NS Partners & Bloomberg.

We maintain a modest overweight to the AI supply chain on a view that sharply accelerating demand for compute will continue to support growth and profitability for companies dominating key tech hardware chokepoints. However, navigating the cycle successfully will require disciplined adjustments of conviction levels as fundamentals shift, and ensuring this is tightly aligned with portfolio risk.

EM performance is broadening out

In our last commentary, Taking stock of EM performance, we highlighted the extent to which EM outperformance has been dominated by the tech trade. There are signs the rally is starting to broaden out with a number of regional bull markets bubbling away, as illustrated below.

EM MTD and YTD Returns

Source: MSCI

Over the year to the end of July, 18 of the 24 EM markets above delivered positive returns, while 17 of the 24 rose in July. Latin America was the most consistent region across both periods with Colombia the standout, followed by Greece, Hungary and Poland in emerging Europe. In MENA, the GCC was weak across the board, positive momentum returned in Egypt, while returns in South Africa have been negative over both periods.

EPS growth in Taiwan and South Korea has been explosive, the trend in the rest of EM is improving

Source: HSBC Equity Research, July 2026.

EM valuations are low both in absolute terms and relative to DM

Price to Forward Earnings Ratios MSCI Indices, 12m Forward Earnings, Source: IBES

Source: NS Partners & LSEG Datastream.

Style rotation?

After years of outperformance, quality stocks within EM equities are showing signs of an upturn.

MSCI EM Style Indices relative to MSCI EM, 5y ago = 100

Source: NS Partners & LSEG Datastream.

Overvalued exchange rates are a headwind for Mexico, Brazil and Eastern Europe, with Asian currencies mostly cheap

Real broad effective exchange rates
% deviation from 5y ma, Source: BIS

Source: NS Partners & LSEG Datastream.

Emerging market equities have been resilient despite Gulf War III pressuring energy prices, yields and the dollar higher. As noted earlier in this piece, a cross-over of global real narrow money growth below industrial output growth (what we call negative excess liquidity, or less money than economies need) has historically been a negative performance indicator for the asset class. While real narrow money growth reconverged with output in May / June, this has not yet reversed the April cross-over.

Global real money growth on a par with output growth

G7 + E7 industrial output & real narrow money (% 6m)

Source: NS Partners & LSEG Datastream.

Strength amid these headwinds could reflect the combination of earnings upgrades, valuations and cheap currencies, and may be a signal of good things to come if the United States, Iran and Israel can broker a peace in the coming months.

The post AI reflexivity and EM rotation appeared first on Groupe financier Connor, Clark & Lunn ltée.

Investors remained captivated by the AI capex cycle through a July selloff in tech hardware names across North Asia. A parabolic rally in tech hardware stocks controlling bottlenecks in the AI supply chains was followed by a sharp correction during the month. Pundits ascribed market jitters to concerns that hyperscaler capex may be curtailed, reflecting speculation that returns from investment in the technology might be less than compelling.

Second-quarter results from the megacap US tech companies flew in the face of these fears, with firms broadly reporting robust earnings growth in cloud computing services and hinting at healthy returns from their bets on AI. However, doubts are creeping in over whether earnings upgrades can be sustained, adding to concerns over the rising use of debt to fund the capex boom and the competitive threat posed by cheap open-source Chinese LLMs to more expensive frontier model providers in the United States.

Hyperscaler capex estimate by year (USD bn)

Source: Mizuho Securities Equity Research, July 2026.

Artificial Analysis Index – higher is better

Source: Artificial Analysis, August 2026.

Fragile liquidity backdrop

In our view, these risks were well understood before the sell-off. The unwind may instead have been driven by a deterioration in the global liquidity backdrop and an associated deleveraging in crowded trades. NS Partners Chief Economist Simon Ward flagged the risk early in the month (A “monetarist” perspective on current equity markets):

“Global six-month real money growth has fallen back since early 2026, crossing below industrial output expansion in April (see below chart). This suggests that the global economy will lose some momentum during H2, while the monetary backdrop for markets has become less favourable, at least temporarily.”

G7 + E7 industrial output & real money (% 6m)

Source: NS Partners & LSEG Datastream.

South Korean retail speculators driving parabolic rallies in AI hardware winners added to the vulnerability, with the correction appearing to coincide with systematic quarter-end repositioning. This triggered weakness in “speculation of choice” names that fed deleveraging and forced selling. According to Citi, more than 360,000 South Korean margin accounts were forced into liquidation with 62% of those individuals wiped out under the age of 35.

Leverage in South Korea

Source: Jefferies Equity Research, July 2026.

We had been trimming our AI exposure into the event, but in hindsight we should have been more aggressive ahead of what was the largest pullback in Asia momentum since 1999.

Asia Momentum (L/S) – monthly performance

Source: Bernstein Equity Research, August 2026.

Little has changed by way of the growth and profitability drivers of our tech hardware companies in Taiwan and South Korea

For example, TSMC is forecast to generate 30% EPS in 2027 with a gross profit margin of over 55% and trades on a PE of 15.8x 2027 and 12.7x 2028. Elsewhere in Taiwan a number of companies in the tech hardware supply chain continue to deliver EPS upgrades, with the recent de-rating providing some attractive entry points.

In South Korea, DRAM giant Samsung Electronics reported record revenues and operating profits for the quarter with the latter beating estimates driven by exponential growth in AI server demand. The company expects supply constraints to tighten further in 2027 despite investments in supply. The company has no debt and trades on a free cash flow yield of c.16% for 2026, with a PE of 3.1x for 2027 and 2.9x for 2028. We anticipate that the company will announce a shareholder return plan for c.50% of FCF in August including a special dividend, which should provide some support for valuations and reduce capital misallocation concerns.

Caveat: TSMC and the memory giants are very different beasts

TSMC is the monopoly in advanced semiconductors that power all of the latest technological innovations, boasting structural competitive advantages that underpin lower earnings volatility through customer lock-in. While the dominant memory companies SK Hynix, Samsung Electronics and Micron exist in an oligopolistic industry enjoying a demand supercycle powered by AI spending, they remain at the mercy of severe supply-demand swings. Although we expect this memory cycle to go on longer than most expect, nothing cures high prices like high prices.

Tech monopoly vs. memory super cycle

Source: NS Partners & Bloomberg.

We maintain a modest overweight to the AI supply chain on a view that sharply accelerating demand for compute will continue to support growth and profitability for companies dominating key tech hardware chokepoints. However, navigating the cycle successfully will require disciplined adjustments of conviction levels as fundamentals shift, and ensuring this is tightly aligned with portfolio risk.

EM performance is broadening out

In our last commentary, Taking stock of EM performance, we highlighted the extent to which EM outperformance has been dominated by the tech trade. There are signs the rally is starting to broaden out with a number of regional bull markets bubbling away, as illustrated below.

EM MTD and YTD Returns

Source: MSCI

Over the year to the end of July, 18 of the 24 EM markets above delivered positive returns, while 17 of the 24 rose in July. Latin America was the most consistent region across both periods with Colombia the standout, followed by Greece, Hungary and Poland in emerging Europe. In MENA, the GCC was weak across the board, positive momentum returned in Egypt, while returns in South Africa have been negative over both periods.

EPS growth in Taiwan and South Korea has been explosive, the trend in the rest of EM is improving

Source: HSBC Equity Research, July 2026.

EM valuations are low both in absolute terms and relative to DM

Price to Forward Earnings Ratios MSCI Indices, 12m Forward Earnings, Source: IBES

Source: NS Partners & LSEG Datastream.

Style rotation?

After years of outperformance, quality stocks within EM equities are showing signs of an upturn.

MSCI EM Style Indices relative to MSCI EM, 5y ago = 100

Source: NS Partners & LSEG Datastream.

Overvalued exchange rates are a headwind for Mexico, Brazil and Eastern Europe, with Asian currencies mostly cheap

Real broad effective exchange rates
% deviation from 5y ma, Source: BIS

Source: NS Partners & LSEG Datastream.

Emerging market equities have been resilient despite Gulf War III pressuring energy prices, yields and the dollar higher. As noted earlier in this piece, a cross-over of global real narrow money growth below industrial output growth (what we call negative excess liquidity, or less money than economies need) has historically been a negative performance indicator for the asset class. While real narrow money growth reconverged with output in May / June, this has not yet reversed the April cross-over.

Global real money growth on a par with output growth

G7 + E7 industrial output & real narrow money (% 6m)

Source: NS Partners & LSEG Datastream.

Strength amid these headwinds could reflect the combination of earnings upgrades, valuations and cheap currencies, and may be a signal of good things to come if the United States, Iran and Israel can broker a peace in the coming months.

The post AI reflexivity and EM rotation appeared first on Groupe financier Connor, Clark & Lunn ltée.

GDP (gross value added) rose by 1.1%, or 2.2% annualised, in the six months to June, having shown no growth in the prior six months (i.e. between June and December 2025).

Energy prices spiked at the end of Q1 with the increase only now feeding through to household tariffs, so the claim of resilience is premature, even ignoring monetary considerations.

Both the economic stagnation of H2 2025 and the H1 2026 pick-up were signalled by money trends. Six-month rates of change of real narrow and broad money turned negative in spring 2025 but rebounded into early this year – see chart 1.

Chart 1

Momentum has since softened again, with real narrow money returning to contraction. Trends are not yet as weak as a year ago but still suggest a significant H2 economic slowdown.

As an aside, the latest Monetary Policy Report included an analysis of broad money developments, focusing on whether the current stock is out of line with its “equilibrium” level, implying future changes to spending / prices to restore balance. The conclusion was that any “money gap” is small, in contrast to 2022, when the analysis would have suggested significant inflationary potential.

While any discussion of money in the MPR is welcome, the view here is that a focus on uncertain estimates of stock disequilibrium risks neglecting the information content of changes in money growth for future activity and inflation. Monetary acceleration / deceleration carries a message for policy even in the absence of an underlying stock imbalance.

The post More UK stop-go appeared first on Groupe financier Connor, Clark & Lunn ltée.

GDP (gross value added) rose by 1.1%, or 2.2% annualised, in the six months to June, having shown no growth in the prior six months (i.e. between June and December 2025).

Energy prices spiked at the end of Q1 with the increase only now feeding through to household tariffs, so the claim of resilience is premature, even ignoring monetary considerations.

Both the economic stagnation of H2 2025 and the H1 2026 pick-up were signalled by money trends. Six-month rates of change of real narrow and broad money turned negative in spring 2025 but rebounded into early this year – see chart 1.

Chart 1

Momentum has since softened again, with real narrow money returning to contraction. Trends are not yet as weak as a year ago but still suggest a significant H2 economic slowdown.

As an aside, the latest Monetary Policy Report included an analysis of broad money developments, focusing on whether the current stock is out of line with its “equilibrium” level, implying future changes to spending / prices to restore balance. The conclusion was that any “money gap” is small, in contrast to 2022, when the analysis would have suggested significant inflationary potential.

While any discussion of money in the MPR is welcome, the view here is that a focus on uncertain estimates of stock disequilibrium risks neglecting the information content of changes in money growth for future activity and inflation. Monetary acceleration / deceleration carries a message for policy even in the absence of an underlying stock imbalance.

The post More UK stop-go appeared first on Groupe financier Connor, Clark & Lunn ltée.

Investissements immobiliers Crestpoint Ltée est heureuse d’annoncer qu’elle a conclu, en partenariat avec le Groupe Minto, l’acquisition de Minto Apartment REIT. Cette transaction marque une étape importante dans la croissance de la plateforme canadienne de placements immobiliers de Crestpoint.

Évaluée à environ 2,3 milliards de dollars, la transaction établit un partenariat à long terme entre Crestpoint et le Groupe Minto axé sur la détention, la gestion et la croissance d’immeubles résidentiels multifamiliaux locatifs de grande qualité partout au Canada.

Pour Crestpoint, cette acquisition représente une expansion importante de sa stratégie immobilière multifamiliale et lui donne accès à un portefeuille de grande qualité composé d’immeubles résidentiels construits expressément pour la location dans les principaux marchés canadiens. La transaction renforce également la position de Crestpoint dans un secteur soutenu par une demande à long terme pour des logements locatifs bien situés dans les grands centres urbains.

« La conclusion de cette transaction marque une étape importante pour Crestpoint, a déclaré Kevin Leon, président et chef de la direction de Crestpoint. Nous sommes heureux de nous associer à Minto, un propriétaire, gestionnaire et promoteur immobilier résidentiel hautement respecté qui possède une vaste expertise partout au Canada. Ce partenariat cadre avec notre approche de placement à long terme et constitue une assise solide pour poursuivre notre croissance dans le secteur multifamilial. »

Minto continuera de fournir des services de gestion immobilière pour le portefeuille détenu conjointement et offrira également des services de développement et de gestion de la construction pour les projets futurs. Cette structure permettra au partenariat de tirer parti des capacités opérationnelles de Minto ainsi que de l’expertise de Crestpoint en gestion de placements et de son accès au capital.

Pour en savoir plus, consultez le communiqué de presse complet, offert en anglais seulement.

The post Crestpoint conclut la transaction visant la privatisation de Minto Apartment REIT appeared first on Groupe financier Connor, Clark & Lunn ltée.

Crestpoint Real Estate Investments Ltd. is pleased to announce that, in partnership with Minto Group, its acquisition of Minto Apartment REIT is now complete. This deal marks an important milestone in the growth of Crestpoint’s Canadian real estate platform.

The transaction, valued at approximately $2.3 billion, establishes a long-term partnership between Crestpoint and Minto Group focused on the ownership, management and growth of high-quality multi-family rental properties across Canada.

For Crestpoint, this is a meaningful expansion of its multi-family real estate strategy and provides access to a high-quality portfolio of purpose-built rental properties in core Canadian markets. The transaction also strengthens Crestpoint’s position in a sector supported by long-term demand for well-located rental housing in major urban centres.

“Completing this transaction marks an important step forward for Crestpoint,” said Kevin Leon, President and Chief Executive Officer of Crestpoint. “We are pleased to partner with Minto, a highly respected residential real estate owner, operator and developer with deep expertise across Canada. This partnership aligns with our long-term investment approach and provides a strong foundation for continued growth in the multi-family sector.”

Minto will continue to provide property management services for the jointly owned portfolio and will also provide development and construction management services for future projects. This structure allows the partnership to benefit from Minto’s operating capabilities while leveraging Crestpoint’s investment management experience and access to capital.

Read the full press release

The post Crestpoint’s take-private transaction of Minto Apartment REIT complete appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The earlier slowdown suggested that the global industrial economy would lose some momentum during H2. A cooling may already have begun, with manufacturing PMI new orders easing for a third successive month in July. Still, the latest uptick in real money growth argues against significant weakness, at least through year-end.

The recent violent correction in momentum stocks followed global six-month real money growth – on both narrow and broad definitions – crossing below industrial output expansion in April, suggesting a loss of “excess” money support for markets. Real narrow money growth reconverged with output expansion in May / June, with real broad money growth slightly weaker – chart 2. This suggests a neutral monetary backdrop for markets, in contrast to positive conditions in late 2025 / early 2026.

Chart 2

The rise in real money growth has been driven by US acceleration / strength, contrasting with weakness in the rest of the G7 – chart 3. Such divergence is unhealthy, suggesting a misalignment of policy stances, a correction of which could lead to further monetary / market volatility.

Chart 3

The post Global money update: US lift appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The earlier slowdown suggested that the global industrial economy would lose some momentum during H2. A cooling may already have begun, with manufacturing PMI new orders easing for a third successive month in July. Still, the latest uptick in real money growth argues against significant weakness, at least through year-end.

The recent violent correction in momentum stocks followed global six-month real money growth – on both narrow and broad definitions – crossing below industrial output expansion in April, suggesting a loss of “excess” money support for markets. Real narrow money growth reconverged with output expansion in May / June, with real broad money growth slightly weaker – chart 2. This suggests a neutral monetary backdrop for markets, in contrast to positive conditions in late 2025 / early 2026.

Chart 2

The rise in real money growth has been driven by US acceleration / strength, contrasting with weakness in the rest of the G7 – chart 3. Such divergence is unhealthy, suggesting a misalignment of policy stances, a correction of which could lead to further monetary / market volatility.

Chart 3

The post Global money update: US lift appeared first on Groupe financier Connor, Clark & Lunn ltée.

As you can see in the performance chart below, the AI capex boom has been by far the dominant driver of returns this year.

Source: NS Partners and LSEG Datastream.

The rally in emerging markets this year has been so narrow that less than 25% of stocks have outperformed the benchmark.

MSCI EM – Percentage of stocks outperforming the index (rolling 12-month)

Source: Jefferies Equity Research, June 2026.

South Korea’s outperformance has been driven to an extreme by local retail participation in leveraged/unleveraged single-stock ETFs.

Fund assets of 16 single-stock leveraged/inverse ETFs linked to Hynix and Samsung Electronics

Source: Jefferies Equity Research, July 2026.

We are now seeing some profit taking and de-leveraging in overcrowded areas, and the correction from the highs among semiconductor stocks has been sharp, with the KOSPI correcting over -30% from its June peak.

Despite hitting oversold levels, our inclination is not to catch the falling knife and double down, but rather wait for signs of consolidation in tech while looking for opportunities in EM laggards outside North Asia.

The positioning data below from EPFR illustrates how many markets outside of Taiwan and South Korea have been abandoned by investors and may offer up some attractive opportunities.
 

The dominance of South Korea and Taiwan market performance over the last 12 months is reflected in significantly lighter positioning elsewhere

South Korea: 9.2% → 21.7%, OW vs benchmark went from +1.6pp to +5.3pp

Taiwan: 15.9% → 23.3%, active weight rose sharply, yet Taiwan active remains underweight vs benchmark.  UW widened to −3.3pp from −2.6pp

China: 23.1% → 18.0%, cut heavily and UW vs benchmark narrowed from −2.2pp to −0.8pp

India weighting has nearly halved from the peak

India the “AI loser”

From the charts above, India stands out as the biggest victim of the enthusiasm for North Asian tech stocks. Just a couple of years ago India was one of the standout equity markets over a period of decades. Now Indian stocks cannot seem to catch a break.

Since the end of 2024, India’s weighting in the MSCI EM benchmark has fallen from nearly 20% to 9% today, as Taiwan and South Korea have surged from a quarter to almost half the benchmark. Last year, Indian equities posted their worst year relative to Asian equities since the 1990s.

Source: Bloomberg

Broken story?

In the lead up to the market peak in 2024, India’s investment narrative was the ideal EM structural growth story:

• Continental-sized economy enjoying healthy growth.
• Favourable demographics, the largest working age population accounting for around 69% of the population (United Nations Population Prospects 2025).
• High levels of education, producing over 2.5 million STEM graduates annually.
• Over a decade of stable politics under Prime Minister Modi.

Indeed, it was this final point that we were most excited about, as a decade or more of stable politics and positive incremental reforms were beginning to bear fruit. Our conviction for India’s bright prospects rest on an understanding that institutional quality is a crucial factor for unlocking sustained economic growth and moving up the development ladder.

Institutional quality can be the difference between a country like Argentina – which, at the beginning of the 20th century was one of the richest countries on the planet, to where it is today with high inflation and political dysfunction (although, under President Milei, Argentina is taking its first steps to resolve this) – and Singapore, one of the poorest countries on earth 50 years ago, before taking off in an era of rapid development to be one of the richest countries in the world today.

Is the market signalling that something is broken in India?
 

Incremental reform

Modi’s tenure has brought with it initiatives including bankruptcy law reform, sanitation universalisation, electrification of rural India, a national goods and services tax, demonetisation and digital payments infrastructure. Any one of these initiatives may seem relatively trivial in isolation. However, it is the compounding effect of these incremental steps that can create a virtuous circle that unlocks the next upward shift in wealth.

For a country the size of India, that progress will see several hundred million Indians join the formal economy and accumulate wealth, which can in turn present a host of opportunities for investors with the framework to harness these structural tailwinds.

We think this story remains intact.

GDP growth among the best in EM

Source: Berstein, June 2026

Multiple headwinds

Foreign investors have abandoned Indian equities, having designated the market an “AI loser” due the disruption of its five-million-strong IT services sector. Higher energy prices on the back of the US-Iran conflict have been an added headwind.

Annual foreign net buying of Indian equities

Source: Jefferies Equity Research, June 2026

After a decade of strong performance, India was an obvious source of funds to add to South Korea and Taiwan as the boom in hyperscaler capex saw the earnings of tech hardware companies in those countries skyrocket.

The foreign exodus has come as earnings growth for the market has fallen below the highs of 2022–2024 (over 30%). It appears to have troughed at 5.8% in 2025 and is forecast to accelerate into the mid-teens by 2027.
 

Lots of paper coming out

A stream of IPOs coming to market soaking up liquidity has been an added drag. In the financial year ending March 2026, an all-time high of 266 IPOs were filed with SEBI, and since March we have seen another 39 filings in three months suggesting these headwinds will persist.

Source: HSBC India Equities, July 2026.

While this is a short-term headwind, these listing are the makings of a far deeper and more diverse opportunity set for investors in India.
 

Still not cheap

On a price-to-earnings basis MSCI India trades one standard deviation above its 20-year average premium to MSCI EM of 1.5x, although on a price to book basis it looks reasonable.

MSCI India Trailing Price to Book

Source: Bloomberg.

There are pockets of value and positive earnings revisions across financial services, banks, real estate, software, healthcare and retail staples, but this is beside the bigger structural point. In India we have the institutional reform story fuelling sustained economic and corporate earnings growth, and a deep opportunity set of companies with high-quality management teams.

Key mantra: be careful relying on mean reversion tables when there is positive structural change taking place

Alongside the reforms mentioned above, the development of India’s domestic pension and mutual fund industry is a powerful force which can drive stock market re-rating. Just as we saw in places like Australia and Chile, the creation of a structural, non-cyclical source of demand for financial assets can create powerful feedback loops. Below is a rough schematic:

Jefferies Head of Global Equity Strategy Chris Wood has been one of the leading strategists emphasising the importance of these pension and mutual fund flows. His charts below illustrate that while foreigners have run for the exits, domestic demand for Indian equities remains robust.

Monthly net inflows into domestic equity mutual funds

Note: Exclude arbitrage funds. Data up to May 2026.
Source: AMFI, Jefferies

Estimated National Pension System (NPS) flows into equities

Source: Jefferies Equity Research, June 2026.

The AI earnings boom in Korea and Taiwan has captivated investors over the past 12 months. While we have held a healthy overweight to the theme for several years, we maintain a wide aperture in our search for positive structural stories across a diverse opportunity set in emerging markets. Despite being distinctly out of favour, India’s rise up the development ladder remains one of the most exciting opportunities in the asset class.

Next month we will publish a few examples of some brilliant companies in India capitalising on these structural trends, and where stock market malaise has presented us with some attractive entry points.

The post Taking stock of EM performance appeared first on Groupe financier Connor, Clark & Lunn ltée.

As you can see in the performance chart below, the AI capex boom has been by far the dominant driver of returns this year.

Source: NS Partners and LSEG Datastream.

The rally in emerging markets this year has been so narrow that less than 25% of stocks have outperformed the benchmark.

MSCI EM – Percentage of stocks outperforming the index (rolling 12-month)

Source: Jefferies Equity Research, June 2026.

South Korea’s outperformance has been driven to an extreme by local retail participation in leveraged/unleveraged single-stock ETFs.

Fund assets of 16 single-stock leveraged/inverse ETFs linked to Hynix and Samsung Electronics

Source: Jefferies Equity Research, July 2026.

We are now seeing some profit taking and de-leveraging in overcrowded areas, and the correction from the highs among semiconductor stocks has been sharp, with the KOSPI correcting over -30% from its June peak.

Despite hitting oversold levels, our inclination is not to catch the falling knife and double down, but rather wait for signs of consolidation in tech while looking for opportunities in EM laggards outside North Asia.

The positioning data below from EPFR illustrates how many markets outside of Taiwan and South Korea have been abandoned by investors and may offer up some attractive opportunities.
 

The dominance of South Korea and Taiwan market performance over the last 12 months is reflected in significantly lighter positioning elsewhere

South Korea: 9.2% → 21.7%, OW vs benchmark went from +1.6pp to +5.3pp

Taiwan: 15.9% → 23.3%, active weight rose sharply, yet Taiwan active remains underweight vs benchmark.  UW widened to −3.3pp from −2.6pp

China: 23.1% → 18.0%, cut heavily and UW vs benchmark narrowed from −2.2pp to −0.8pp

India weighting has nearly halved from the peak

India the “AI loser”

From the charts above, India stands out as the biggest victim of the enthusiasm for North Asian tech stocks. Just a couple of years ago India was one of the standout equity markets over a period of decades. Now Indian stocks cannot seem to catch a break.

Since the end of 2024, India’s weighting in the MSCI EM benchmark has fallen from nearly 20% to 9% today, as Taiwan and South Korea have surged from a quarter to almost half the benchmark. Last year, Indian equities posted their worst year relative to Asian equities since the 1990s.

Source: Bloomberg

Broken story?

In the lead up to the market peak in 2024, India’s investment narrative was the ideal EM structural growth story:

• Continental-sized economy enjoying healthy growth.
• Favourable demographics, the largest working age population accounting for around 69% of the population (United Nations Population Prospects 2025).
• High levels of education, producing over 2.5 million STEM graduates annually.
• Over a decade of stable politics under Prime Minister Modi.

Indeed, it was this final point that we were most excited about, as a decade or more of stable politics and positive incremental reforms were beginning to bear fruit. Our conviction for India’s bright prospects rest on an understanding that institutional quality is a crucial factor for unlocking sustained economic growth and moving up the development ladder.

Institutional quality can be the difference between a country like Argentina – which, at the beginning of the 20th century was one of the richest countries on the planet, to where it is today with high inflation and political dysfunction (although, under President Milei, Argentina is taking its first steps to resolve this) – and Singapore, one of the poorest countries on earth 50 years ago, before taking off in an era of rapid development to be one of the richest countries in the world today.

Is the market signalling that something is broken in India?
 

Incremental reform

Modi’s tenure has brought with it initiatives including bankruptcy law reform, sanitation universalisation, electrification of rural India, a national goods and services tax, demonetisation and digital payments infrastructure. Any one of these initiatives may seem relatively trivial in isolation. However, it is the compounding effect of these incremental steps that can create a virtuous circle that unlocks the next upward shift in wealth.

For a country the size of India, that progress will see several hundred million Indians join the formal economy and accumulate wealth, which can in turn present a host of opportunities for investors with the framework to harness these structural tailwinds.

We think this story remains intact.

GDP growth among the best in EM

Source: Berstein, June 2026

Multiple headwinds

Foreign investors have abandoned Indian equities, having designated the market an “AI loser” due the disruption of its five-million-strong IT services sector. Higher energy prices on the back of the US-Iran conflict have been an added headwind.

Annual foreign net buying of Indian equities

Source: Jefferies Equity Research, June 2026

After a decade of strong performance, India was an obvious source of funds to add to South Korea and Taiwan as the boom in hyperscaler capex saw the earnings of tech hardware companies in those countries skyrocket.

The foreign exodus has come as earnings growth for the market has fallen below the highs of 2022–2024 (over 30%). It appears to have troughed at 5.8% in 2025 and is forecast to accelerate into the mid-teens by 2027.
 

Lots of paper coming out

A stream of IPOs coming to market soaking up liquidity has been an added drag. In the financial year ending March 2026, an all-time high of 266 IPOs were filed with SEBI, and since March we have seen another 39 filings in three months suggesting these headwinds will persist.

Source: HSBC India Equities, July 2026.

While this is a short-term headwind, these listing are the makings of a far deeper and more diverse opportunity set for investors in India.
 

Still not cheap

On a price-to-earnings basis MSCI India trades one standard deviation above its 20-year average premium to MSCI EM of 1.5x, although on a price to book basis it looks reasonable.

MSCI India Trailing Price to Book

Source: Bloomberg.

There are pockets of value and positive earnings revisions across financial services, banks, real estate, software, healthcare and retail staples, but this is beside the bigger structural point. In India we have the institutional reform story fuelling sustained economic and corporate earnings growth, and a deep opportunity set of companies with high-quality management teams.

Key mantra: be careful relying on mean reversion tables when there is positive structural change taking place

Alongside the reforms mentioned above, the development of India’s domestic pension and mutual fund industry is a powerful force which can drive stock market re-rating. Just as we saw in places like Australia and Chile, the creation of a structural, non-cyclical source of demand for financial assets can create powerful feedback loops. Below is a rough schematic:

Jefferies Head of Global Equity Strategy Chris Wood has been one of the leading strategists emphasising the importance of these pension and mutual fund flows. His charts below illustrate that while foreigners have run for the exits, domestic demand for Indian equities remains robust.

Monthly net inflows into domestic equity mutual funds

Note: Exclude arbitrage funds. Data up to May 2026.
Source: AMFI, Jefferies

Estimated National Pension System (NPS) flows into equities

Source: Jefferies Equity Research, June 2026.

The AI earnings boom in Korea and Taiwan has captivated investors over the past 12 months. While we have held a healthy overweight to the theme for several years, we maintain a wide aperture in our search for positive structural stories across a diverse opportunity set in emerging markets. Despite being distinctly out of favour, India’s rise up the development ladder remains one of the most exciting opportunities in the asset class.

Next month we will publish a few examples of some brilliant companies in India capitalising on these structural trends, and where stock market malaise has presented us with some attractive entry points.

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