GIB AM Emerging Markets Active Engagement fund manager Kunal Desai on the importance of AI infrastructure, domestic self-sufficiency and ‘policy put play’ themes across global emerging markets
Emerging markets may have roared back in 2025 – outperforming the US by the widest margin seen in the last decade – but, after a long period in the wilderness, the asset class still remains “under-appreciated and under-owned”, according to Kunal Desai, manager of the GIB AM Emerging Markets Active Engagement Fund.
Last year’s rally had a number of external drivers, including a weaker dollar and unstable US, but the real catalyst was a turnaround in earnings. “Emerging market companies turned their profitability around, giving confidence to global investors,” says Desai in the above video.
At the same time, emerging market companies were able to display real resilience during some volatile moments. His was far higher than in the last 15 years,” says Desai. “So even though 2025 had a huge amount of volatility – you think back to the DeepSeek moment, to Trump’s ‘Liberation Day’ tariff policies – emerging markets actually experienced lower drawdowns than those seen in the US market.
When we think about the recovery we saw last year, it was very broad-based. The first quarter was about China, Eastern Europe, then it moved to Taiwan, then to South Africa, and then to Korea.”
“When we think about the recovery we saw last year, it was very broad-based. The first quarter was about China, Eastern Europe, then it moved to Taiwan, then to South Africa, and then to Korea.”
Today, Desai says, earnings and return on equity revisions in emerging markets are outstripping those seen in developed markets at the fastest pace seen in the last 10 to 15 years at the same time as there is a historically wide valuation gap between emerging markets and the US.
Desai goes on to explain that he is focused on three key areas in the fund. The first is the artificial intelligence infrastructure trade – the chip manufacturers and the AI supply chain – which is predominantly based in Asia.
The second is “domestic self-sufficiency”, which covers areas such as defence, power and infrastructure, and the third is areas of the market that are benefiting from policy change, which supports corporate governance reforms and return on equity improvement.
A full transcript of this interview can be found after this box while you can view the whole video by clicking on the picture above. To jump to a specific question, just click on the relevant timecode:
00.00: What makes emerging markets a compelling investment opportunity today?
01.39: What are the key factors making emerging markets attractive at the moment?
03.09: Are there any areas in emerging markets you would particularly identify as being underappreciated or having the potential to generate strong future returns?
05.07: What gives you confidence the sort of performance we saw in 2025 can be sustained into the future?
06.25: India had a tougher year last year. Can you see conditions changing for Indian stockmarkets?
08.18: What about the key risks investors need to consider when evaluating the case for emerging markets today?
09.41: How do you define ‘active investing’ in the context of emerging markets?
11.09: Where would the fund naturally sit in a broader emerging markets portfolio?
12.01: People talk about concentration risk in the US but has that been a problem in emerging markets too?
13.36: Has the risk premium for emerging markets changed?
Investment views transcript: Kunal Desai, manager of the GIB AM Emerging Markets Active Engagement Fund
What makes emerging markets a compelling investment opportunity today?
KD: Well, I think emerging markets today are under-appreciated and under-owned, and I think by combining those two factors today, it makes it a really interesting investment proposition for global investors today. When you think back to the last 10 or 15, years, we really think about that as being the ‘lost decade’ for emerging markets.
They were under huge amount of stress, there was balance sheet repair, a lot of external vulnerabilities that need to be dealt with. While the US markets and developed markets were really seeing an improvement in corporate profitability, predominantly driven by the tech sector.
Now, 2025 we saw a step change. We saw emerging markets now outperforming the US by the widest margin that really we have seen in the last decade – up 30%, outperforming by about 17 percentage points. And really what I think is interesting for investors today is whether this resurgence can continue and whether that leadership can sustain. And really what we would point to is triggers in terms of a weaker dollar, but also the corporate fundamental earnings recovery, which we’re now seeing across emerging markets, that gives confidence to global investors.
Comparing developed markets and emerging markets, what are the key factors making emerging markets attractive at the moment?
KD: So one I would say, which I think is sometimes misunderstood, is actually the resilience emerging markets have today, which is far higher than where they’ve been in the last 15 years. So even though 2025 had a huge amount of volatility – you think back to the DeepSeek moment, you think back to Trump’s ‘Liberation Day’ tariff policies – emerging markets actually experienced lower drawdowns than what you had in the US market.
When we think about the recovery we saw last year, it was very broad-based. The first quarter was about China, Eastern Europe, then it moved to Taiwan, then to South Africa, and then to Korea. Whereas developed market investing has been really focused on a smaller part of the market, typically tech, which has driven those returns. So the broad-based recovery from a stock-price perspective in emerging markets has now created really that relative opportunity that exists today.
Going forward, what we’re looking for is sources of earnings revisions and now, when we compare earnings and return on equity revisions in emerging markets, they are outstripping the developed markets at the fastest pace seen in the last 10 or 15, years. So this is what we believe investors really need to take on in the context of valuations in emerging markets being at 14x versus the US at 23x – which is in the 99th percentile. So this asymmetric investment opportunity still exists today, which is very much in support of the emerging market story.
Are there any areas in emerging markets you would particularly identify as being underappreciated or having the potential to generate strong future returns?
KD: Well, what’s different today versus five years or 10 years ago, is the pockets of opportunity in emerging markets abroad. When you think back to 2015/16/17, it was really about India, whereas the rest of emerging markets were suffering. Then it moved towards China. It moved to Taiwan, but it was really about smaller pockets of emerging markets which were seeing this revision story coming through. I think what’s exciting about emerging markets today is you’re expecting earnings growth to move from about 11% to 17% over the course of the year. But again, this is across geographies and across sectors.
Within that, we have pockets where we are seeing the most outsized revision potential. And really what we would point is three areas. The first is the artificial intelligence infrastructure trade. So this is essentially chip manufacturers. This is designers of chips who are really positioned at the ‘bottleneck’ of the way the AI development and infrastructure story will go – so businesses in Korea and Taiwan, and crucially, as that rotates to businesses that benefit from this AI technology.
The second aspect is what we call ‘domestic self sufficiency’. So this end of multilateralism, towards multi-polarity, has created supply chains to be essentially dismantled and reconstructed. And crucially, the self sufficiency story in terms of defence, in terms of power, in terms of infrastructure, is a really neat and compelling opportunity today.
The final area is what we would call ‘policy put plays’ – so parts of the market that benefit from accelerated policymaking, which supports corporate governance reforms and return on equity improvement. We have seen this in Korea. We’re seeing this in India. We’re also seeing this in parts of Latin America. So those three areas, I think are where we see the most sensitive revision upgrades over the next 18 months or two years.
What gives you confidence the sort of performance we saw in 2025 can be sustained into the future?
KD: When you look at 2025, much of the stock returns were really driven by rerating. It wasn’t a huge amount to do with earnings upgrades – it was more about a repricing. So, essentially, risk premiums fell and the valuation multiples of cheap emerging markets repriced higher.
What matters for 2026 and 2027 is the sustainability and the durability of this earnings growth. So as I mentioned, the weaker dollar is balm for key emerging markets as it allows them to cut interest rates far more aggressively. This means earnings have moved up from about 11% expectations to 17% or 18% and, crucially, what we are now seeing is that the barriers to entry that companies have been able to erect are more fortified and stronger, which creates that durability of cashflows.
So when we think about what will matter most for the leadership of emerging markets going forward, a lot of the easy work has taken place last year, and it comes back to the corporate fundamentals, which is really aligned with those three pockets, which I described earlier as having the most chance of that revision support.
India had a tougher year last year. Can you see conditions changing for Indian stockmarkets?
KD: Yes. As I think you know, India has gone from being adored to ignored – and that is certainly something we have written about and think about quite frequently. India’s position, from a global emerging market standpoint, had been very much driven by quality – the quality of its earnings, its return on equity was high – but it is also very consistent, so it attracted premium valuations to the rest of emerging markets, which were by nature more cyclical and had their own individual issues.
I think what has held back India last year has not been anything India-specific – but just the relative opportunities we’ve seen in Korea, in Brazil, in South Africa, which was driven by this repricing I described earlier. India’s position in emerging markets will remain incredibly important because the durability of the corporate fundamental story remains intact. Valuations have moved – as a premium to the rest of Asia – from 90% to 50%, foreign flows are at 20-year lows.
We have seen India, as you mentioned, have the weakest relative performance seen in 30 years. So it provides quite an interesting contrarian opportunity for investors today. We would really point to two aspects within India, which we think are interesting. The first is mass consumption. India remains one of the most compelling consumer stories the world has ever seen, and that will continue over the next five, 10, 15 years. The second has been this self-sufficiency industrialisation story.
So India has been very aggressive in terms of its ‘Make in India’ story – essentially looking not necessarily to assemble products, but to manufacture products from first principles. That is enjoying policy support and enjoying tailwinds in terms of investment. So these are the two areas we think can be surprise factors within an emerging market context – and crucially within a global perspective too.
What about the key risks investors need to consider when evaluating the case for emerging markets today?
KD: Emerging markets have had traditional high volatility – and this is because policymaking has sometimes been patchy. Capital markets aren’t necessarily as mature as what you have in the developed world. I think what was interesting about last year was, if you had those various headlines of what happened from a volatility perspective, most people would have expected emerging markets to suffer.
And I think what has happened is the external vulnerabilities that emerging markets once had have really diminished, and this has been down to the painful balance-sheet repair programme that many have been on over the last 10 years.
Still, what would concern us from an emerging market context would be the outlook for the dollar. If we do see a resurgence in the dollar – which we don’t think is likely, but if that does come through, that can be a natural headwind to valuation multiples. Secondly, there is an election cycle. A number of key emerging markets, particularly in Latin America, are going through an election cycle this year, and any pivot to more left-leaning economic policies can hinder some of the good progress that many have made.
But, beyond that, the valuations are very attractive – much cheaper than what we have in developed markets. The return on equity inflection is far superior. And, crucially, from an investor positioning perspective, they are still very much underweight.
How do you define ‘active investing’ in the context of emerging markets?
KD: The way in which we have approached active investing within emerging markets is to be far more hands-on with our portfolio companies. For us, active management isn’t just about having a particular style bias or having a particular active share number in mind. Rather, it’s the way in which we can work with our portfolio companies to drive change.
And really what we are looking for – what any stock investor is looking for – is a revision in expectations: where can a company actually be something more than what’s implied by its current valuation? So what we think about when it comes to active management is identifying a set of businesses that we believe are the most underappreciated from an emerging market context. These are the companies where the implied expectations today don’t necessarily reflect the true compounding power or the true risk of those businesses.
And what we do, from an active perspective, is then work with these portfolio companies to accelerate this change. How can we provide portfolio companies suggestions to improve aspects of their return on equity, their compounding power, their cash generation? How can we provide suggestions to reduce their cost of capital by these companies improving governance standards or their investor relations? So, for us, it is a very hands-on approach to why companies can essentially see a revisions in their expectation catalysed by the suggestions that we, as an investment team, bring to them.
Where would the fund naturally sit in a broader emerging markets portfolio?
KD: Within a broader portfolio, really where we sit is we consider ourselves a scalable global emerging market fund. Now for us, what we’re focusing on is where we can extract the highest degree of earnings revisions in a business. So just as you’re looking for companies that can meet or beat expectations, what we’re trying to find is a set of businesses where we can essentially drive that change. So this typically sits alongside a passive product.
Our focus is more in the midcap or large midcap part of the emerging market sphere. We won’t typically own the largecap companies, which really are the big constituents of the index, but rather we can sit alongside those types of products and provide investors with a different set of companies that are very much driven by earnings and revisions in expectations, which is catalysed by the engagement we offer.
People talk about concentration risk in the US but has that been a problem in emerging markets as well? And does that hinder your ability to generate excess returns, or is that actually a source of opportunity?
KD: You’re right. The story we have seen in the US has been about this concentrated part of the market – the Magnificent Seven and so on – which had been the hallmark of the index’s returns over the last three years. We’ve seen this in emerging markets. We often look at ‘hit’ ratios – so the number of companies that are beating the broader market. And in 2021/22 that was 45% or 50% but that’s narrowed to about 20% so essentially, the number of companies that can outperform the index has been reducing, which has meant the concentration of the index has risen.
So this is typically why, last year, you saw a huge amount of returns, or the proportion of returns, being generated by the top four or five companies. Now, for us, this is a feature of the market, which typically is accelerating from a flow perspective. But as this cycle matures, as we see essentially growth becoming more broad-based, dispersion increases – and that creates the relative opportunity for these parts of the market which are being ignored.
A case in point would really be India. From 2014/15 to 2020/21, the initial leg up of that market was driven by largecaps concentrating parts of the market. But as that cycle matured, really, the relative opportunities came in the midcap space, and this is what we anticipate for Korea, for parts of China, for Brazil, LatAm and broadly across emerging markets, again, as this cycle matures and evolves.
Has the risk premium for emerging markets changed?
KD: That has been one of the reasons why emerging markets last year had that rerating story. When we look at many pockets across the emerging world, which have seen their risk premium essentially revised down at a faster rate than what we’ve seen with the US, I think – pre the current administration in the US – risk premium in the US had been very low, which had meant this ‘US exceptionalism’ story had really driven the narrative of premium valuations.
But when you think about what drives that risk premium, one factor is obviously the context of political decisions; one is independence of institutional pillars; one is the way in which individual economies are integrated with each other, which can create essentially trade-driven growth. And all three of those aspects have really been kind of under threat from a US perspective, relative to where emerging markets were at the same stage.
So I think that story of risk premium repricing has really helped shape that relative-return story. I think it is evidenced really in two ways. One has been obviously, last year, with that volatility – emerging markets suffered on ‘down days’ less than what you had in the US. And the second is the dollar having one of the weakest years in 2025 in the last 20 or 30, years. And that was really a barometer of that repricing story, which we saw and continue to expect.
