Kamil Dimmich, partner and portfolio manager at North of South Capital, thinks emerging markets are splitting apart in performance. He doesn’t blame geopolitics so much as how closely these economies tie into AI-related spending.
After the Iran conflict, he points out that what really sets countries apart is whether they sit at the center of AI hardware production and semiconductor supply chains. South Korea and Taiwan are out in front. Markets with little AI investment exposure just aren’t keeping up. This blog breaks down his perspective for investors who want to grasp the longer-term, tech-driven forces shaping EM outcomes.
What is driving the divergence in emerging markets?
Dimmich sees the split among EMs as a structural shift driven by tech demand, not just a knee-jerk reaction to geopolitics. He says the key is how much a country can benefit from the rush into AI and all the spending that comes with it—hardware, software, processors, the whole lot.
The Iran war shakes things up in the short run, but over time, it’s technology spending that really moves the needle for economies. That’s where the real sector gains show up.
AI spending as the differentiator, not broad risk sentiment
AI expenditure is what’s powering faster growth and juicier returns in certain markets. Dimmich urges investors to look at economies through their exposure to AI demand, not just political risk.
Countries pouring capital into AI ecosystems—places where semiconductors, cloud infrastructure, and AI-enabled services are booming—see stronger earnings and higher equity multiples. In this view, the strength and staying power of AI-related capex tell you more about future performance than any geopolitical headline ever could.
Country performance in EM: Korea and Taiwan as case studies
South Korea and Taiwan are living proof: when you’re deeply woven into AI hardware and semiconductor supply chains, you outperform. Their exports are loaded with advanced chips, memory, and related gear. So, when AI adoption surges, manufacturers and suppliers in these economies get a real lift.
Meanwhile, markets with weak AI investment—maybe because their tech ecosystems aren’t up to snuff, or they’re not plugged into semiconductors—struggle, even if they face the same world events. If a country is a core player in the AI hardware cycle, secular AI demand can drown out short-term risk signals.
What this means for portfolio construction
Looking at three decades of market cycles and tech adoption, the takeaway for asset allocation is to lean toward economies building or already strong in AI and semiconductors. Political risk matters, sure, but it’s not the only thing. You’ve got to weigh it against a country’s shot at riding the AI spending wave in the long run.
Dimmich’s approach? Find the “secular winners” from AI investment and work them into your diversification strategy, instead of just sticking to old-school country risk metrics.
Key takeaways for investors
- Prioritize AI-enabled economies: Put more weight on markets with strong semiconductor ecosystems and AI hardware supply chains—think Korea and Taiwan.
- Assess exposure to AI capex: Don’t get distracted by headlines. Dig into where AI-related capital expenditure is piling up and likely to stay strong.
- Balance with diversification: Keep a broad EM exposure, but tilt toward the economies leading in AI to catch that secular demand.
- Monitor policy and tech cycles: Keep an eye on tech cycles, export controls, and supply chain shifts that could shake up AI investment trends.
Conclusion: long-term tech trends above geopolitical noise
Dimmich puts it plainly after nearly thirty years in the business—AI spending shapes emerging-market outcomes more than political risk does. Investors who lean into markets with strong semiconductor and AI ecosystems could really benefit as global AI adoption picks up.
The Iran conflict might bring some short-term bumps, but honestly, AI’s structural demand keeps driving performance. For portfolio managers, it probably makes sense to focus on secular winners in AI and semiconductors, while still keeping things diversified enough to handle whatever comes next in emerging markets.
Here is the source article for this story: Markets remain bifurcated, AI & semiconductors dominate gains: Analyst