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Emerging Markets Show Resilience as Local Investors Absorb Foreign Selling, AI Remains Key Catalyst

Electronic Technology · Semiconductors · economic_daily · 2026-09-09

Despite recent foreign outflows from emerging markets like Taiwan and Korea, local investors are stepping in, signaling confidence as AI spending continues to drive growth.

What Happened

Local Investor Confidence: While foreign investors have been net sellers in emerging markets like Taiwan and South Korea, Franklin Templeton portfolio manager Chetan Sehgal notes that local capital is actively absorbing these sell-offs. This shift indicates a growing confidence in domestic economic fundamentals, marking a departure from previous market cycles.

AI as a Growth Engine: Sehgal highlights that AI spending is projected to more than double over the next five years, serving as a critical catalyst for market performance. While the initial rally was concentrated in semiconductors and AI supply chains, the momentum is expected to broaden to other sectors.

Valuation Upside Potential: Market data reveals that gains in emerging markets have been highly concentrated in the top three weighted stocks, leaving other components with relatively low returns. This suggests significant room for valuation recovery in non-AI heavyweights as the rally potentially widens.

Outlook and Strategy: Franklin Templeton maintains a positive outlook on global economic and earnings fundamentals. Investors are advised to focus on AI-driven growth while diversifying portfolios into cyclical, value, and small-cap stocks to hedge against rising U.S. Treasury yields.

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