Emerging-Markets Stocks Have Rarely Been So Hated. It’s Time to Buy

The last time emerging markets were doing this badly the term “emerging markets” hadn’t been coined yet.

That spells opportunity, and the greatest spoils might go to those investors who are the boldest and also willing to look past that poorly-defined category. The benchmark for how emerging markets stocks are doing is a widely followed index maintained by MSCI that has returned less than 4% annually in the past five years, compared with nearly 12% for global equities and more than 15% for U.S. stocks.

Dig into any of those broad categories, though, and there are clear leaders and laggards. A whopping 65% of the MSCI All Country World Index’s market value, including nine of its top 10 stocks, were American as of the end of October. The MSCI Emerging Markets Index has been dragged down in large part since 2020 by China, where a housing crisis and a heavy-handed approach to technology firms by leader Xi Jinping have depressed valuations. Alibaba Group and Tencent Holdings were two of the world’s most valuable companies four years ago, before the tech crackdown.

If not for the massive surge of the MSCI index’s Chinese components in September on renewed stimulus hopes, the overall picture for emerging-markets stocks would be even worse. India, in no small part because it isn’t China, has seen huge foreign and domestic investor interest and now has the third largest weighting in the emerging-markets index. But it also is one of the world’s pricier markets .

Emerging markets outperformed developed market stocks in the century’s first decade as commodity prices boomed and the tech and housing bubbles dented the U.S. market. Today, though, they are much cheaper as a multiple of earnings, and not solely because of China.

Just buying an emerging-markets index fund and betting on the performance pendulum swinging back could be a decent strategy. Bolder investors might be able to do better: The most enticing opportunities are where skepticism is highest.

For example, Mexico and the multinational companies that use it as a base to sell products destined for the U.S. are in President-elect Donald Trump ’s crosshairs. Newly-elected leftist President Claudia Sheinbaum also faces violent drug cartels and protests over changes to the country’s judiciary. But the MSCI Mexico Index has gone absolutely nowhere, with a slightly negative return over the past decade and a forward price-to-earnings ratio of around 10 times—less than half that of the U.S. market.

And Mexico is pricey compared with South Africa, Brazil and Turkey, which fetch multiples on the same measure of about 9.8 times, eight times and five times, respectively. All three also face significant domestic problems and leaders who have mismanaged their economies. But even poorly-run countries can have long-term promise, and occasionally some short-term charms: Brazil’s dividend yield, for example, is about 6%, or five times that of the S&P 500 index.

Another way to profit as a savvy emerging-markets investor? By reading what is on the label and then ignoring it. MSCI’s benchmark has had an odd definition of what qualifies that mostly matters to professional money managers.

For example, both South Korea and Taiwan are major emerging markets, but their citizens are wealthier than those of developed Portugal or Greece. With leading high-tech companies like Taiwan Semiconductor Manufacturing Co . and Samsung Electronics , educated workforces and excellent infrastructure, they have more in common with neighbouring Japan, a developed market. MSCI cites market access issues that hold them back. That might still make them attractive places to invest, but the rapid growth a country enjoys by becoming modern, educated and wealthy—the sort of thing that has people so excited about India’s long-term potential—are now behind them.

Getting booted from the index can create anomalies too. Israel, which is richer than Britain or France , was included in the emerging-markets index until 2010 for what seems like geographical reasons. Then it went from being a notable emerging-markets investing destination to irrelevancy for many fund managers.

Because it is the only officially “developed” market in the Middle East, Israel is now part of the little-tracked MSCI Europe and Middle East Index created that year instead of the more-followed MSCI Europe, which dates to 1986. It is also a minuscule part of MSCI EAFE, which tracks 21 non-U.S. developed markets. With world class healthcare and tech companies like Teva Pharmaceutical Industries and Check Point Software in the index, “Startup Nation’s” stocks trade at barely half of the forward price-to-earnings ratio of the tech-heavy U.S. market.

And there are other stock markets just waiting to join, or rejoin, the official emerging-markets club. By the time they do the best gains might have been had. Take Argentina , which was demoted to “stand-alone” status three years ago because it was difficult to invest there. It has had a blistering return in dollars of almost 50% a year in the three years through October compared with a negative return for the MSCI Emerging Markets Index over that time.

While far from a foolproof investing strategy, betting that the last shall be first and buying what feels uncomfortable could pay off when it comes to beaten-down emerging-markets stocks.

There has rarely, if ever, been so much tech talent available in the job market. Yet many tech companies say good help is hard to find.

What gives?

U.S. colleges more than doubled the number of computer-science degrees awarded from 2013 to 2022, according to federal data. Then came round after round of layoffs at Google, Meta, Amazon, and others.

The Bureau of Labor Statistics predicts businesses will employ 6% fewer computer programmers in 2034 than they did last year.

All of this should, in theory, mean there is an ample supply of eager, capable engineers ready for hire.

But in their feverish pursuit of artificial-intelligence supremacy, employers say there aren’t enough people with the most in-demand skills. The few perceived as AI savants can command multimillion-dollar pay packages. On a second tier of AI savvy, workers can rake in close to $1 million a year .

Landing a job is tough for most everyone else.

Frustrated job seekers contend businesses could expand the AI talent pipeline with a little imagination. The argument is companies should accept that relatively few people have AI-specific experience because the technology is so new. They ought to focus on identifying candidates with transferable skills and let those people learn on the job.

Often, though, companies seem to hold out for dream candidates with deep backgrounds in machine learning. Many AI-related roles go unfilled for weeks or months—or get taken off job boards only to be reposted soon after.

Playing a different game

It is difficult to define what makes an AI all-star, but I’m sorry to report that it’s probably not whatever you’re doing.

Maybe you’re learning how to work more efficiently with the aid of ChatGPT and its robotic brethren. Perhaps you’re taking one of those innumerable AI certificate courses.

You might as well be playing pickup basketball at your local YMCA in hopes of being signed by the Los Angeles Lakers. The AI minds that companies truly covet are almost as rare as professional athletes.

“We’re talking about hundreds of people in the world, at the most,” says Cristóbal Valenzuela, chief executive of Runway, which makes AI image and video tools.

He describes it like this: Picture an AI model as a machine with 1,000 dials. The goal is to train the machine to detect patterns and predict outcomes. To do this, you have to feed it reams of data and know which dials to adjust—and by how much.

The universe of people with the right touch is confined to those with uncanny intuition, genius-level smarts or the foresight (possibly luck) to go into AI many years ago, before it was all the rage.

As a venture-backed startup with about 120 employees, Runway doesn’t necessarily vie with Silicon Valley giants for the AI job market’s version of LeBron James. But when I spoke with Valenzuela recently, his company was advertising base salaries of up to $440,000 for an engineering manager and $490,000 for a director of machine learning.

A job listing like one of these might attract 2,000 applicants in a week, Valenzuela says, and there is a decent chance he won’t pick any of them. A lot of people who claim to be AI literate merely produce “workslop”—generic, low-quality material. He spends a lot of time reading academic journals and browsing GitHub portfolios, and recruiting people whose work impresses him.

In addition to an uncommon skill set, companies trying to win in the hypercompetitive AI arena are scouting for commitment bordering on fanaticism .

Daniel Park is seeking three new members for his nine-person startup. He says he will wait a year or longer if that’s what it takes to fill roles with advertised base salaries of up to $500,000.

He’s looking for “prodigies” willing to work seven days a week. Much of the team lives together in a six-bedroom house in San Francisco.

If this sounds like a lonely existence, Park’s team members may be able to solve their own problem. His company, Pickle, aims to develop personalised AI companions akin to Tony Stark’s Jarvis in “Iron Man.”

Overlooked

James Strawn wasn’t an AI early adopter, and the father of two teenagers doesn’t want to sacrifice his personal life for a job. He is beginning to wonder whether there is still a place for people like him in the tech sector.

He was laid off over the summer after 25 years at Adobe , where he was a senior software quality-assurance engineer. Strawn, 55, started as a contractor and recalls his hiring as a leap of faith by the company.

He had been an artist and graphic designer. The managers who interviewed him figured he could use that background to help make Illustrator and other Adobe software more user-friendly.

Looking for work now, he doesn’t see the same willingness by companies to take a chance on someone whose résumé isn’t a perfect match to the job description. He’s had one interview since his layoff.

“I always thought my years of experience at a high-profile company would at least be enough to get me interviews where I could explain how I could contribute,” says Strawn, who is taking foundational AI courses. “It’s just not like that.”

The trouble for people starting out in AI—whether recent grads or job switchers like Strawn—is that companies see them as a dime a dozen.

“There’s this AI arms race, and the fact of the matter is entry-level people aren’t going to help you win it,” says Matt Massucci, CEO of the tech recruiting firm Hirewell. “There’s this concept of the 10x engineer—the one engineer who can do the work of 10. That’s what companies are really leaning into and paying for.”

He adds that companies can automate some low-level engineering tasks, which frees up more money to throw at high-end talent.

It’s a dynamic that creates a few handsomely paid haves and a lot more have-nots.

Emerging-Markets Stocks Have Rarely Been So Hated. It’s Time to Buy

The best returns might require investing in troubled countries and looking past the benchmark index to find some gems

A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.

Playing a different game

Overlooked