Stephen Rudman: Good morning and good afternoon. My name is Stephen Rudman, and I am a member of the Ashmore New York City-based client-facing team. Welcome. I hope all are well. Thank you for joining today's Ashmore webinar, fancy name, "The Big Rotation: Why Geopolitics, AI and Commodities Favour EM Equities Now." With that, it's really a look at, obviously, a very strong emerging markets (EM) equity market in 2025, a very, very strong start to 2026, and, of course, what we're thinking in the space and where we think opportunity lies ahead. 

Today's webinar is hosted by myself, but the real participants and the players are Gustavo Medeiros, who is our Global Head of Research, and Dhiren Shah, who is our Lead Portfolio Manager for our flagship EM Equity strategy, which includes a US 40 Act fund, a SICAV fund, and multiple institutional mandates around the world.

We will address questions at the end of Gus and Dhiren's dialogue and commentary. So, feel free. If we don't get to your question during the webinar, we promise, and we're pretty good at this, that we will address and answer your question directly once the webinar is completed. Okay, with that, again, thank you all for joining. We appreciate your time, we appreciate your trust and support of the strategy. So, with that, Gus, I'm going to hand it over to you, and let's get the ball rolling.

Gustavo Medeiros: Great, thank you very much, Steve, for the intro. I'll start with a brief global macro overview, obviously touch on the situation in Iran, and then start the usual Q&A focusing on this strategy. The macro environment was evolving as we expected. We've got to say. Growth has been buoyed by large artificial intelligence (AI) capex. There were signs of deterioration in the labour market driven by AI adoption, and we also were seeing, at least until a few weeks back, inflation softening in most places in the world, particularly in the Anglo-Saxon world. That's changed a little bit, but broadly speaking, that remains the direction of travel, and all of that kept interest ates subdued. Investors were using this environment to diversify from overvalued US assets, a move which was obviously benefiting EM assets quite significantly. Within EM, it must be emphasised there has been a large improvement in the earnings per share environment over the last 18 months already, which means that the outperformance over the last six to nine months did not reduce significantly the discount to US or developed market (DM) asset prices. 

Obviously, South Korea and Taiwan were very large contributors to the earnings per share improvement in EM, but the improvement was broad, with pretty much all of Latin America, South Africa, India, Malaysia, and China seeing earnings growth on a 12-month blended forward-looking basis. The Dollar decline, driven by diversification flows and interest rate convergence between the US and the rest of the world, mean the cycle is likely to have more legs over the next few quarters. And that's pretty much the scenario that we'll be talking about, and we would be talking a little bit more about that if it weren't for the exogenous shock we just had. 

Over the weekend, the US and Israel launched coordinated strikes on Iran that killed the Ayatollah Ali Khamenei, probably the most consequential development in the Middle East in 50 years, since 1978. There is obviously a lot of uncertainty about the situation and the impact on the war, as well as the potential leadership transition in Iran. But market participants and asset prices will be behaving according to two key events: how long the flows on the Hormuz Strait remain impaired or the strait remains closed de facto, and will Iran or the US-Israel coalition try to destroy energy assets as a tactic for the war? And we'll try to address that very briefly. 

Today, the strait closure is really led by insurance companies and sea masters. The strait remains operational for Iranian and Chinese ships as far as we can tell. And there is a lot of pressure from both China and other, more broadly, Asian countries that are interested in keeping the strait open. We've seen declarations that there were large strikes impacting pretty much the entire Iranian fleet of Navy of 11 ships, and therefore, the ability of Iran to close it militarily is impaired, and the ability of them to mine can lead to closures that will be relatively short-term only. That's the situation on the strait at the moment.

In the first four days of war, most of the focus has been on military sites on both sides. There have been hundreds of airplanes from both the US and Israel attacking Iran, and they have air superiority. And Iran is retaliating on a very, you know, broad field. They did hit a few oil and gas facilities, but it seems to be done by either drones, which typically cause much less acute damage than the missiles, or debris from attacks that were targeting other areas that led to temporary closures. And most closures, by the way, it must be said, have been done by security reasons. For example, QatarEnergy closed its liquified natural gas (LNG) production site for security reasons after a water tank from a factory next door was hit by a drone. And they announced earlier today that some of their chemicals and product factories have been shut down as well for security reasons. But so far, there have been no signs that there are widespread attacks from either side on energy facilities, neither from the US-Israeli side nor from the Iranian side. 

Obviously, it must be said, overnight, President Trump said that they were initially expecting this campaign to last between four and five weeks, while Israel’s Benjamin Netanyahu also highlighted this won't be a forever war. The market has been expecting this to be a very, very short war. Some people expected it to be similar to the 12-day war from last year, where some optimistic people maybe were talking about a scenario closer to Venezuela, which has always been very hard to understand in our perspective.

But the reality is that I think this, three-to-six-week timeline makes sense. Obviously, it's contingent on how things happen on the ground. It seems to us that the objectives are to finish obliterating the nuclear facilities within Iran, but also, importantly, dealing with their intercontinental ballistic capability, of particularly surface-to-surface missiles, but also other bits. Trump's real constraint, it must be emphasised here, is not really Congress or international law, but the midterm elections. And that, again, suggests that a timeline of a few weeks or maybe a couple of months, could be realistic, not much longer than that. Therefore, that must be the base case. Two to six weeks, I think, is a reasonable base case scenario in terms of the conflict to last. It's hard to believe that the US puts boots on the ground, which also limits the scope of this attack. But it could also be over within a couple of hours or days, or by the end of this week. The reality is that nobody knows, right? I think that this is the key point here, that this war is very consequential and brings many questions. We don't know how the political situation in Iran is going to evolve. We don't know what are the real hard constraints from the US. Israel seems to be facing very little in terms of constraints in terms of public opinion or political willingness to do that. But it does feel like the campaign is pretty advanced by now on day four of the war, and a weeks-long time horizon makes sense. 

Now, it's worthwhile to remember that in the meantime, the EM outlook is likely to remain relatively unchanged in most scenarios. The EM fundamentals remain very solid. Earnings per share are improving. The macro situation has been improving over the last three to four years. And this outperforming situation, EM outperforming over the last six to nine months, did not lead to a very large contraction of discount. So, with that, let's flip to the Q&A. Dhiren, in more practical terms, how are we positioned in terms of regional exposure in the Middle East?

Dhiren Shah: Perfect, Gus. So obviously, as you say, on a direct basis in the Middle East, our exposure's been quite modest for the last year, so it's a couple of percent of the funds, quite low. We're underweight the region, and that's primarily been on valuations and also just a general underwhelming view of oil prices. And so clearly, what you described and what we see, it's clearly a more challenged region. What we have is very modest exposure, which we're reducing further. So directly, clearly not a significant impact in terms of the fund, but as we all know, the indirect stuff is the stuff that's more interesting and more relevant. We're acutely aware of the different scenarios. We think of the terms of trade in terms of some of the Asian countries, be it India, be it Korea, what that does to the Yuan. Near term, the market's thinking inflation: does that mean fewer rate cuts, global liquidity? There's clearly more uncertainty, higher risk premium, but this typically happens anyway, then the markets settle down once we get a bit more certainty. 

The next question we naturally ask ourselves is, beyond just short-term uncertainty, will there be a consequential long-term growth shock on a one-year view in terms of activity, companies' investment decisions, bottlenecks, and so on. We'll have a more certain view of that, or a clearer view of that, I'd say, probably in a month's time. But today it's something we're mindful of. But obviously, the conviction in that is low given the things you described.

Gustavo Medeiros: Yes, it must be emphasised here. I think the duration of this oil shock is going to be more important than how acute the oil shock is i.e., the all-time highs on oil don’t matter as much as for how long this scenario of elevated oil prices remain in place. That is going to determine the size of the potential stagflationary wave that comes to the global economy. 

One global macro aspect I'll highlight: interest rates sold off over the last two days. I think some of that is technical. Central banks should not hike interest rates on the back of that, and they should keep monetary policy more or less in line with what they were looking to do prior to the conflict, right? So obviously, EM central banks would be slightly more conservative and DM central banks would be a bit more conservative as well at the margin. But this is first and foremost a demand shock, and that actually has an impact on the economy. Central banks will do well looking through the inflationary impact of that. Specifically, one of the surprises, obviously, was the retaliation, heavy retaliation on the United Arab Emirates (UAE). So how are we seeing that? We think that we can see an opportunity perhaps in the region. Saudi Arabia, for example, has been largely spared in terms of the retaliation. Valuations have been de-rating for a while. How are we thinking about that within the next couple of weeks?

Dhiren Shah: First of all, the Saudi market hasn't been that interesting just from a valuation standpoint for some time, and in terms of the opportunity sets of companies that we can find, which fight to get into the portfolios. So clearly, what we look at is, well, we've done the work, and we're ready to take advantage of market dislocations when they're meaningful. As we see it, there's no reason to be adding any exposure there currently. But, you know, if there are opportunities in the Middle East, or more broadly, there normally are dislocations, and with a bit of patience and discipline, that can present a nice opportunity to be adding or buying exposure.

Gustavo Medeiros: Right. And what about Korea and Taiwan? This has been driving quite a lot of market performance. Obviously, there's a bit of a shock today. How many more legs does it have? Notwithstanding this short-term shock, let's say, if we can look through that as central banks should look through the inflationary impact, which I think is probably a good policy, how many more legs were we thinking in terms of the fundamentals there?

Dhiren Shah:  Let me start on, obviously, Taiwan, and we've been speaking about this for a number of years. We've been very constructive, and I'll just do a very quick recap of just how things have evolved. If you look back to a couple of years ago, we started to see the emergence of AI demand. It was, let's say, mid-single digits as a percentage of sales of a number of these globally competitive companies, monopolies, duopolies, and these volumes and sales have been kind of multiplying. Today, 20, 30, 40% of sales are now kind of AI-driven. So, it's been very, very significant. What's been happening, which is very interesting, is you have now seen not just volumes going up, but you're now starting to see elements of pricing power. So, the starting point was you're making great revenues, great margins, and margins were going up because AI is very complex in terms of the processes. But actually, now you're getting pricing on top of that. This is obviously very supportive from an equity return standpoint; you get volumes and pricing and margin expansion, which is all wonderful. 

But what's been happening at the same time is, obviously, prices have gone up quite a lot. We have been very constructive on Taiwan tech semiconductors in the last few years, but as you have stocks effectively pricing this in and sometimes getting exuberant, what we've been doing is trimming exposure and, in some cases, exiting stocks altogether. So, we like the mid-term, but it requires now some more valuation discipline, which over the last couple of years, stocks have been very cheap in Taiwan. I think now you have to be more selective. As you'll see in our exposures, we still have a collection of companies we like, but it's not the kind of same extent that it was, I'd say, a year ago or two years ago. In the past, Taiwan was our preferred way to explore this. 

The second question, obviously, was on Korea, historically a more cyclical market, but what you've had is pricing power to almost another level there. In terms of the semiconductor industry, Samsung and Hynix are obviously two well-known companies, two large stocks. As you've had significant demand, there aren't many companies that can produce those kind of memory chips globally. What we've seen is prices go up multiple-fold to the extent where clients are scrambling around looking for volumes for 2028, looking to pay for those upfront now. So, it's a very good position for these two particular companies to be in. 

And if we frame it from a global perspective, as ultimately, it's a global industry, if you look at some of the end customers, there's Microsoft, there's Oracle, there's Meta, these companies are now spending significant capex, as we all know, and they're actually free cash flow negative. So, it's a big change from where we were in the prior five years or so, where these companies were generating significant cash flow. The flip side of that is now their suppliers, which are uniquely placed in terms of the technology to build this infrastructure, they are generating significant cash flow. And we look at Hynix, Samsung, each of these companies generating free cash flow of USD 100bn each this year, potentially USD 200bn each next year; these are significant cash flows. 

And this goes into the wider story about Korea. It's not just about the semiconductor cycle, but it's the broader governance reform. We first started talking about this in the middle of last year. There has been an objective, and anyone who has looked at these markets for a long time, there's always been a ‘Korea discount’, something was always levied and that's because of just underlying governance standards, which are below where they need to be. Under the new government, there's been a concerted effort to improve standards. And even just today, you had companies cancelling treasury shares, there have been changes in independence and cumulative voting rights and a number of different initiatives, companies increasing payout ratios. 

That's obviously very important because in Korea, across healthcare, insurance, technology, you've got world-leading companies that have always traded at a significant discount to EM, let alone to the rest of the world. These are globally competitive, best-in-class companies. And so, while a lot of these stocks have gone up significantly, they still trade at really big discounts to their global counterparts, in spite of being global leaders. 

As this continues to improve in terms of governance, where companies detail their shareholder return plans and so on, there is significant scope for the multiples to expand further. Having said that, we're obviously mindful of the cyclical nature of some of those industries, and so we've continued to take profits there, but what we are encouraged by is the expectations of volumes, expectations of pricing. We're almost going up on a quarterly basis, and so the fundamentals continue to improve, and that's in the cyclical areas and also in the non-cyclical areas. There's a deep pool of companies. Obviously, we've taken profits where the markets have gone up. Korea has been one of the best-performing markets globally over the last year. So, we've taken cash out, but it still remains a market that we do like.

Gustavo Medeiros: Excellent, very good. It's pretty striking to see that the free cash flow of the memory guys in 2026 and 2027 is forecasted to be above the hyperscalers and above the likes of TSMC, right? So that's a fundamental story, obviously. Turning to another big one, obviously China. China was having a pretty good run since September 2024 until pretty much early this year, when the A team started to try to cool down the rally, right? We're talking about China potentially as the next big AI trade that is undervalued. The macro is starting to improve, to some extent the Renminbi is strengthening. We obviously have quite a lot of announcements that will come this week from the China Two Sessions. But some of the speculation that is coming out is that they're looking to increase consumption taxes and starting to rein in some of the fiscal excesses. How do you see it and how we are thinking about it in terms of positioning.

Dhiren Shah: Yes, so at the beginning of last year, constructive valuations, etc, etc. And then obviously markets have moved, and then what we saw towards the end of last year, around the third quarter or the fourth quarter, we saw the macro starting to slow, the first steps of it. So, there's another leg down on real estate, so this carries on falling, so real estate prices continue to go weaker. 

Then across a number of other areas, we started to see pockets of weakness. And as we go into this year, those trends have continued. If you look at auto sales, actually a very important macro indicator, that's been weak, whereas these numbers were very strong in the prior two years. And you also see in the official communique is the softening of GDP growth targets. The country has lots of savings, but the tax revenues are low, and so the government's looking to shore up fiscal spending to spend in other areas, national security, and so on. So, for us, the macro has been softening, weakening, so a negative there. 

On the AI side, so there are always big stories, and there's phenomenal creativity, engineering talent, and so on. And you get these great open-source models which are almost globally competitive in terms of number ones and twos, but they're definitely there. However, the question is, and we invest in companies, and we invest in cash flows more specifically, which are sustainable over time, is how do you get a moat out of that? 

There are a lot of stories around potential monetisation in the future, but it is very competitive. So, there's a lot of AI adoption which is great for productivity, great for companies making improvements. But a lot of the areas this is happening, we are actually not that constructive on, because I think the equity story for us, looking in the three-to-five-year view, we see more competition. What that means for us is we're just very selective., China's always been a very competitive market; last year was e-commerce, this year, we see some of the other internet companies starting to compete with each other. So, it's an area that we have our exposures, we have our moats, but avoiding the specific AI areas which I think will be a bit of a bloodbath. Alongside that, you've got the industrial companies, globally competitive, winning share locally, winning share internationally. 

So, we continue to find some great companies, and what that means for us overall in China is, having been, I'd say, very constructive last year with obviously some caution around the consumer and so on, we've now gone to an underweight position just given some of that competition, and slower macro backdrop. There is lots of liquidity in China so we always know the vast pot of savings as interest rates have been cut over time. Some of these high-yielding time deposits at three, four, they're kind of rolling off, you can earn one, two, and so the pool of capital in the country is immense. There's obviously high belief in the companies, and so on. That money is coming into the stock market, so there is obviously a domestic liquidity story which is going into the stock market, which clearly helps local asset prices. That's something to be mindful of.

Gustavo Medeiros: That's great, thank you, Dhiren. Obviously with the end of the trading programmes, all this front-loaded response coming out of the way, that's natural to expect, and we expect to see us taking advantage of this cycle. What about India? There's been, a pretty record underperformance over the last 12 months between India and other EM countries. Is it now priced in? Is it a good opportunity to start buying in India again after we've been underweight for maybe two years now?

Dhiren Shah: Yes, so as you say, we were taking profits, exiting companies, potentially a bit early, and then it paid off massively last year. So, we cut a very large underweight that we had. What's happened, though, is earnings growth was a bit tepid last year, and the market effectively went sideways while the rest of EM rallied. What that means is the starting point was the market was expensive and the macro was rolling over. 

What we see today is the macro actually is getting better. So, yes, that's encouraging. You see in a number of different areas, some of those green shoots come through. There is that caution around one of the views with that is on the AI disruption, and obviously, IT services is a huge export generator for India, and just the ability for that IT services industry to continue to grow and the employment it provides and consumption, and so on. That's something to be mindful of as well, but clearly, that's not the only kind of driver. 

And at the stock level, individual stocks, there are cases that some stocks have sold off, and so we have found more opportunities than where we were, say, 12 to 18 months ago. But overall, it still means we're underweight, but we're just not underweight to the same extent that we were. So, more interesting, but it doesn't fit into where we are jumping around talking about lots of compelling opportunities, but definitely more than where we were a year ago.

Gustavo Medeiros: Great. Yes, and India is obviously one that always has a bigger hiccup during these times of spikes in oil prices, etc, given their vulnerability there. Talking about commodities, spikes in oil prices, how are we playing the large countries that are large commodity exporters, right? Like Brazil, Latin America more generally, South Africa, how are we thinking in that space where we try to take advantage of this mini supercycle, if you let me call it that for now.

Dhiren Shah: Yes. So, as you say, a combination of base metal prices and some precious metals and so on and low oil prices, you've had some record terms of trade improvement. And so, we frame it first as the kind of obviously direct exposure, then you've got the macro terms of trade, and you've got the duration of it, right? So yes, is this going to flow through into better economic growth in the mid-term. How much of it's just Fed liquidity coming through near-term? And some of that's linked also into the political cycle. 

So, where we have the highest conviction is where you get that improvement in the external accounts, and then that coincides with an improvement in politics. And so, we look at South Africa. Certainly, there has been a big improvement on the fiscal accounts, on the external accounts. Politics is definitely better, but it's far from a constructive environment on a three-year view. And so, what that means for us is limited exposure there. Things are better, but it's not for us where we see lots of strong growth profiles and opportunities. And you've got a slightly different dynamic in pockets of LatAm. So, we've all seen the change, you know, from the left to the right in several EM countries, and we've got Kast in Chile, we have Milei in Argentina, and there are obviously a number of big important elections coming through. So, we find more opportunities there. And if you go from a socialist government to a right government, that has a dramatic impact on the economy on a five-year view, which takes time to come through and takes time to get priced. There are still questions, obviously. One is obviously elections in Peru, and still are obviously elections in Brazil. And so, there are good stock opportunities there, but where we still have questions, it's a case of not having a particularly large or meaningful overweight in these particular markets because of still uncertainty there, whereas in other areas there is a bit more clarity. So, it's once again being selective, but we favour parts of LatAm over, say, South Africa.

Gustavo Medeiros: All very good. Do we have any other points that you'd like to make about the portfolio construction or how you're thinking in general?

Dhiren Shah: No, for us, it remains the case of the same approach, finding great opportunities, having the discipline. The opportunities always present themselves, and we're in an environment right now where clearly things are moving around, but this happens in markets, and it happens in EM. And so, it's a case of just focusing on where the conviction is and where we have the best visibility and where we're paid to take that particular opportunity. 

Gustavo Medeiros:  Yes, we're clearly having a VIX spike, a volatility shock here for the first time. We've been writing and talking about this possibility for a while now. Given how asset prices were behaving, that typically is a very good opportunity for you to consider adding allocation in places that you still have a lot of value left. We keep on highlighting that, most likely that will be a piece, if the volatility shock has one or two more legs from here, that we would be writing in terms of the opportunity to add exposure when you have volatility shocks like that. But that's something that I'm anticipating a little bit. Steve, any questions from the audience?

Stephen Rudman: Yes, in fact, I think we have time for one. And again, if you two can give us the brief answer, very simply, even before the events of the weekend and the disruption that is now taking place, as you guys addressed quite nicely, there's been a concern with the really nice performance in 2025 and obviously a very strong start to 2026, the, "have I missed it?" So maybe if we can summarise or remind people that there is meaningful opportunity as we look out over that, if you will, secular time horizon relative to potential opportunity and obviously performance as we look forward over a longer time period.

Dhiren Shah: I'll give a very quick one. I'm sure Gus will say something more intelligent after me. We've had 15 months of strong performance after a decade of underperformance, and so we go back to fundamentals, we go back to earnings growth, earnings revisions, valuations, multiples. Those are all constructive. Those all still point to a strong return environment. So, whilst clearly noteworthy it has had a strong 15-18 months, the starting point was very low valuations. Over to you, Gus.

Gustavo Medeiros: I think that's well put. We just published a piece at the end of February about flows to EM assets, and the way we framed it is it feels like we're at the end of the beginning, because if you look into the flows that we've seen in the second half of 2025 and year-to-date until mid-February, particularly year-to-date flows felt exaggerated in the very short-term cyclically, right? There were a lot of inflows, there was some risk premium compression, etc. So, I would say that in terms of positioning EM, maybe some people were a little bit over their skis in terms of exposure to EM, I would say crossover investors. 

But when you're looking to flows to funds, both ETF and mutual funds, you can see how asset allocators are behaving, and you can see that the flows we've seen so far are orders of magnitude smaller than the flows that you typically see when EM is behaving well, right? So, if you look at the 2009-2013 period, for example, which is an era where investors didn't want to buy the US. The US was still under this scar of the Great Financial Crisis in the banking sector, etc, and people wanted to diversify. We've seen a large rotation of people selling US assets and buying EM assets. And if you look and compare with that wave of flow, we're talking about orders of magnitude less in flows this time around. What we're saying is that the rotation, and you can see the rotation numbers when you're look into the piece more carefully, and you have to really squint to see the rotation that really just started in Q4 or maybe in Q3 last year to some extent. 

We've been writing about that for a number of years now. The main asset allocation issue that we have today is that investors are all in into one asset class. One place where the valuation is the most expensive. So, I think that this rotation is going to be a multi-year event that's going to be driving relative performance on multi-year dynamics as well. And these typically feed back into the fundamentals. To the extent that more rotation begets a weaker Dollar, a weaker Dollar begets higher earnings per share in Dollar terms in EM space. And that typically feeds back positively on the fundamentals. As risk premium tightens and emerging markets growth accelerates as well. So again, I think that we're far from that. Obviously, the Iran shock is going to feel like a blip in the trend if we're right that this is not going to be, the event is not going to last long term, if even a matter of weeks.

Stephen Rudman: Thank you, that's incredibly helpful. Again, maybe to your point, the blip means that this is an opportunity to take advantage of a short-term disruption in prices, but I'll leave that to our audience to determine. 

With that said, Gus, Dhiren, thank you so much for the time today. I think that was really helpful. Obviously, with the markets being a bit volatile, hopefully, that's helpful from that perspective, but maybe even more so that longer-term view that again, and I like your Churchill-esque title of: "This is the End of the Beginning." So, well done. 

To all attending, thank you so much. Obviously, it's dynamic and busy times, so thanks for taking the time to hear. Know that if you do have any further questions or need assistance, please reach out to your Ashmore contact. We're more than happy to spend the time to assist and get you the data information you need. And finally, we will be sending a follow-up email, as we always do, with a replay. Feel free to share with colleagues that you think would be appropriate. And as always, we wish everybody the very best and all be well until the next time. Thank you.