BlackRock is selling optimism. The latest Market Take from Axel Christensen suggests that AI, global growth, and easing trade uncertainty will lift emerging markets throughout the year. It is a convenient narrative for institutional allocators. The reality on the ground is far more fragmented. We are not witnessing a broad-based recovery. We are seeing a violent divergence between winners and losers.
The Illusion of Easing Trade Uncertainty
Trade tensions have not vanished. They have merely mutated. While the mainstream press points to a stabilization in US-China rhetoric, the structural decoupling remains in full swing. Capital is not flowing back to traditional manufacturing hubs. It is seeking refuge in the nearshoring corridors of Mexico and the tech-aligned sectors of India. According to recent reports from Reuters, the shift in supply chains is no longer a temporary hedge. It is a permanent realignment of global trade architecture.
The dispersion Christensen mentions is the real story. In the previous decade, emerging markets moved in a tight correlation with the US dollar and commodity prices. That era is dead. Today, a country’s proximity to the AI hardware stack or its ability to provide cheap, green energy for data centers dictates its valuation. The passive investment model is failing. Investors who bought the broad MSCI Emerging Markets Index are finding themselves weighed down by stagnant legacy economies while missing the explosive growth in specialized corridors.
AI as a Physical Infrastructure Play
AI is not just software. It is a massive drain on physical resources. Emerging markets are no longer just sources of cheap labor. They are becoming the power plants of the digital age. Countries like Brazil and Chile are leveraging their renewable energy surpluses to attract hyperscale data center investments. This is the hidden engine behind the growth BlackRock is touting. Per data from Yahoo Finance, infrastructure-related equities in these regions have outperformed the broader index by 15 percent since the start of the year.
The technical mechanism is simple. AI training requires immense compute power. Compute power requires electricity. As Western grids struggle with aging infrastructure and regulatory hurdles, the global south is stepping in. This is not a speculative bubble. It is a capital expenditure cycle driven by the largest tech firms on the planet. The dispersion is found in the delta between those who can build and those who are stuck in the debt traps of the 2010s.
Visualizing the Performance Gap
The following data represents the year-to-date performance of key emerging market indices as of February 13. The gap between the leaders and the laggards has reached a three-year high.
Emerging Market Performance YTD (February 2026)
The Active Management Premium
BlackRock’s call for an active approach is a rare moment of honesty from the world’s largest asset manager. Passive indexing in emerging markets is currently a recipe for underperformance. The heavy weighting of legacy Chinese property firms and state-owned enterprises in major indices acts as a drag on the high-growth tech sectors of Southeast Asia and India. Investors are beginning to realize that the term emerging market is too broad to be useful. It groups a nuclear-armed tech superpower with frontier commodity exporters. The risk profiles are incompatible.
| Region | GDP Growth Forecast | AI Infrastructure Spend (USD B) | Debt-to-GDP Ratio |
|---|---|---|---|
| India | 6.8% | 15.2 | 56% |
| Mexico | 3.1% | 4.5 | 48% |
| Brazil | 2.4% | 3.8 | 75% |
| China | 4.2% | 85.0 | 280% |
| ASEAN | 4.9% | 12.1 | 42% |
The table above highlights the fundamental disconnect. China leads in raw AI spending. However, its massive debt-to-GDP ratio and regulatory volatility create a ceiling for equity valuations. Conversely, India and the ASEAN bloc show a healthier balance between growth and fiscal stability. This is where the active management premium is earned. It is about identifying the jurisdictions where capital can actually be repatriated and where the rule of law supports intellectual property rights.
The Geopolitical Arbitrage
We are entering a phase of geopolitical arbitrage. Savvy EMs are playing both sides of the US-China divide. They are accepting Chinese manufacturing expertise while maintaining deep security ties with the West. This dual-track strategy is particularly evident in Vietnam and Indonesia. These nations are becoming the essential middle-men of the global economy. They process raw materials from one bloc and sell finished components to the other. This is the easing trade uncertainty Christensen refers to. It is not that the conflict is over. It is that the workarounds have been institutionalized.
The dispersion is also a function of monetary policy. While the US Federal Reserve has signaled a pause in its hiking cycle, EM central banks have been far more proactive. Many Latin American nations began cutting rates in late 2025. They are now reaping the benefits of a lower cost of capital while the West still battles stubborn services inflation. This head start in the easing cycle is providing a liquidity cushion that is absent in developed markets. Analysis from Bloomberg suggests that this interest rate differential will continue to drive carry trades into high-yielding EM currencies through the second quarter.
The next major data point for the market arrives on March 15. The Federal Open Market Committee will release its updated dot plot. If the Fed maintains its restrictive stance while EM growth continues to accelerate, we will see a massive rotation out of US small-caps and into the top tier of emerging market equities. Watch the 4.25 percent level on the US 10-Year Treasury. A break below that level will be the starting gun for the next leg of the EM rally.
