AI, fintech, and other technologies are spurring growth in developing countries, says Lazard Asset Management's Rohit Chopra. By Reshma Kapadia

The MSCI Emerging Markets index has gained 18% this year, more than twice the gain of the S&P 500. As investors look to diversify portfolios overloaded with U.S. stocks, many are looking abroad. One draw for emerging markets: EM stocks trade for just 12.6 times 2026 estimated earnings, about a 40% discount to the U.S. benchmark's valuation.

Rohit Chopra, a portfolio manager and analyst on Lazard Asset Management's emerging markets equity and emerging markets core equity teams, sees additional attractions, including opportunities created by new technologies and a rising middle class in many developing markets. But treating emerging markets as a monolithic asset class would be misguided, he says, citing widening differences among developing economies.

Chopra and his team oversee more than $15 billion, focusing on companies that have learned to thrive amid geopolitical shifts and that produce strong returns on equity, but whose shares sell at valuations that don't reflect the businesses' competitive advantage or growth potential. The approach has helped the $4.2 billion Lazard Emerging Markets Equity fund he co-manages produce an average annual return of almost 12% a year, beating 93% of peers, according to Morningstar.

Barron's spoke with Chopra on July 14 and subsequently via email about the investment opportunities he sees in China, India, the Middle East, and elsewhere. An edited version of the conversation follows.

Barron's : Where is the opportunity in emerging markets now?

Rohit Chopra: Emerging markets are more than the banks, consumer companies, telecoms, or cement businesses that were popular EM investments in the past. Back then, access to capital was a major driver [of stock performance]. Today there are still opportunities in those foundational industries, but also in companies driving key technologies, such as artificial intelligence and fintech.

U.S. markets account for more than 70% of global market value. Emerging markets are only 10%, despite the potential created by a fourth industrial revolution, which could integrate two billion people into the global economy, raise global income levels, and improve the quality of life through technologies such as AI, robotics, quantum computing, biotechnology, and 5G. These technologies have the potential to enhance productivity, and offer opportunities for innovation and economic growth. That has been underappreciated by the market.

Investors have often thought of emerging markets as an investment monolith. Does that framework still hold?

In early 2000, emerging markets experienced a synchronized recovery as Chinese fixed-asset investment drove the commodity complex, helping markets such as South Africa, Brazil, and Russia.

We are in a less synchronized economic recovery now. India is industrializing and building a middle class. In China, there are opportunities in the economy's shift from a reliance [for growth] on lower-value-added exports and the housing market. In South Korea, there are political changes driving a generational chance to improve the "Korea discount" around corporate governance; think Japan two to three years ago. And Brazil has one of the highest real interest rates in the world at 10%, so we haven't seen a credit cycle in a number of years.

Some of these shifts have been painful, with China's economy still in a rut as the property market sputters. Do you expect Beijing to roll out more aggressive stimulus?

There are significant vulnerabilities: China has a struggling property market and a banking system that isn't generating the same level of economic growth as in the past. But we have probably seen the worst of it [in job losses and economic pain].

Unless there is a real urgency, I don't see significant stimulus to drive consumption. China would rather have a high savings rate to fuel the export sector. But as China moves away from the fixed-asset investment of the past, we will see new companies evolving.

What are some examples?

Chinese drugmakers are challenging Western dominance in terms of spending on research and development for new drug formation, and accelerating biologics and newer areas of innovation. We own Innovent Biologics, which has a tie-up with Eli Lilly to launch GLP-1 drugs in China for weight loss. It is also investing in and developing anticancer drugs. We sometimes underestimate China's competitiveness.

What else is misunderstood about China?

China is doing a lot in autonomous vehicles, renewables, and electric vehicles. We own battery maker CATL [ Contemporary Amperex Technology], the world's largest and most profitable EV battery and energy-storage solutions provider in the world, with almost a 40% global market share in these technologies. More than 50% of Chinese auto sales are coming from EVs, an important tipping point. Consumer offerings are varied: BYD has mass-market appeal with products as low as $13,000, and Xiaomi just launched a premium SUV and sold 300,000 units in an hour.

Also, investors are focusing on the electric-vehicle component and haven't yet thought about the energy storage aspect -- access to the grid, the power [required for] data centers, and how China is going to meet that continued demand. Increasingly, having stable access to energy solutions will be key. Availability and reliability of power is critical as there is mass adoption of AI. We see CATL as a key enabler of energy storage solutions and expect [sales of] energy storage solutions to outpace EV sales in coming years.

Chinese stocks have had a strong run this year after AI models from DeepSeek spurred enthusiasm. How are you thinking about allocations here?

We owned more Chinese stocks than the benchmark last summer when stocks such as Alibaba Group Holding sold off. It went from 30 times earnings to eight times, despite generating a midteens return on equity and having a strong balance sheet. With DeepSeek's announcement, there was a violent recovery. Today, we own less than the benchmark.

What is the case for owning Alibaba?

Chinese e-commerce penetration is 40% and plateauing; consumption is still muted, and competition is increasing from the likes of PDD Holdings, ByteDance, and JD.com. But Alibaba is unique. It has a war chest accumulated from a still cash-generative business and is well placed in areas like hyperscaling in driving the cloud. Its [market] share within state-owned enterprises will also increase. It isn't as cheap as when the stock sold for less than 10 times earnings a year ago, but more profits are coming from areas outside core e-commerce.

MercadoLibre in Latin America is another company finding new opportunities outside of e-commerce. It has been able to democratize access in financial services, offering financing to small merchants.

MercadoLibre is up 40% this year. What more is there to like?

The unit economics of its business. MercadoLibre increasingly understands consumer buying patterns and preferences, and merchants and inventory levels. This integration can create a flywheel effect, where users of MercadoLibre naturally adopt its payment processing services, thereby increasing user engagement and retention.

India's stock market has pulled back after a period of optimism. Is the market more attractive now?

We were significantly underweight India, but more recently have narrowed that underweighting in our style-flexible strategy, as markets have underperformed in the past year and economic growth projections have also come down.

The recent selloff is an opportunity to re-engage. I'm excited about the medium to long term. By 2030, India will be the third-largest economy in the world. When I first started investing, India had a per capita income of less than $500; today it is $2,800. That means consumer preferences are evolving, opening up opportunities.

What is an example?

Indians are using streaming services and scrolling on Instagram. Bharti Airtel, one of the largest telecom network operators, is poised to continue monetizing a voracious and growing appetite for data.

Consumers in India are also discerning and want to buy more than staples. We own InterGlobe Aviation, which owns IndiGo Airlines. Think Southwest with large volumes and a 63% market share. IndiGo competes against Air India, which is going through a restructuring and suffered the sad development of the recent crash [that killed 260 people]. Turning around an airline isn't easy. IndiGo is a disrupter discount airline, without the legacy cost structure. It has new aircraft and is attending to a customer traveling for the first time.

What does IndiGo's growth look like?

The Indian aviation industry is continuing to grow at more than twice the pace of the U.S., with IndiGo poised to deliver 20% earnings growth. For perspective, in India, there are three billion railway trips a year. If you are working in Mumbai and your mom lives in Uttar Pradesh, that is a two-day trip by train and two hours by air. That has a ripple effect on the economy in terms of productivity.

The Middle East is attracting a lot of investor attention, notwithstanding regional tensions. What is the draw, and the outlook?

There is a lot of change. Our focus is on Saudi Arabia and the United Arab Emirates. There is a healthy competition between the two around reform, the equitization of the market, and how petrodollars are invested to diversify the economy. The U.A.E. has been upping its game in terms of attracting talent with a golden visa program. Indians are moving to Dubai to buy second homes. We own developer Emaar Properties, which has a net cash balance sheet, pays a 6% dividend, and trades for under 10 times earnings.

Geopolitics, U.S. trade policies, and other U.S. policies have created a lot of economic and investment uncertainty. What are you most focused on?

I focus on the long-term cost of capital in the U.S., the leadership within the Federal Reserve, and the U.S. fiscal scenario. We are likely to see inflation having some impact on the U.S. consumer. If long-dated government bond yields spike in a meaningful manner, it is important to know which countries will be more susceptible to the increasing cost of capital. Today, that would be Indonesia, South Africa, Mexico, and to some degree South Korea.

On tariffs, we may start with a broad-brush approach at a country level but eventually shift to a more surgical adjustment around key areas of rivalry, such as high-level semiconductor chips with China. But with DeepSeek, we have seen China's ability to innovate.

How important is the dollar's value to emerging markets' prospects?

It depends on the country. If you have a current-account deficit and don't plug it, it will be reflected in a weaker currency. Broadly, when there is a strong dollar, that is a headwind to global growth. A weaker dollar is more of a stimulus.

But what is encouraging is that after emerging market growth rates had fallen versus developed markets, they appear to be positioned for a reacceleration. With U.S. stocks trading at a price/earnings ratio in the mid-20s, and emerging markets at a [40%] discount to that, and with most investors underallocated to the asset class, it looks like emerging markets are set up to outperform.

Thanks, Rohit.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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July 25, 2025 21:30 ET (01:30 GMT)

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