By Sabrina Escobar

Rising fears over artificial intelligence didn't just rock U.S. stocks this week -- they also spilled over to the emerging markets that have benefited from corporate America's AI spending spree. Some parts of EM, however, could act as a hedge against broader market weakness.

While the AI trade is usually viewed as confined to the U.S., it's played a big part in EM as well, particularly in Asia. So with U.S. markets selling off, it shouldn't be a surprise that the iShares MSCI Emerging Markets exchange-traded fund has fallen 2.5% this week, while the iShares MSCI Taiwan ETF was off 1.6%, the iShares MSCI South Korea ETF shed 4.7%, and the iShares MSCI China ETF dropped 5%.

"AI needs a lot of infrastructure to support it, and when you look at emerging markets, they have China, South Korea, Taiwan -- very tech-heavy areas that could support AI growth," said Stacie Mintz, managing director and head of quantitative equity at PGIM Quantitative Solutions.

There's a lot more to emerging markets than East Asia, however. India is "arguably one of the most compelling" non-AI emerging market plays, says Kunal Desai, a portfolio manager and EM specialist at GIB Asset Management. Although the country underperformed other emerging markets in 2025, this year is setting up for a strong recovery. FactSet consensus estimates see the iShares MSCI India ETF's earnings per share rising 16% year over year in 2026 compared with the prior year, and then increasing another 15% in 2027.

India isn't entirely insulated from the AI meltdown. Some of its largest companies, Infosys and Tata Consultancy Services among them, got caught up in this week's selloff, shedding 4.8% and 3.6%, respectively. But as Desai notes, India's broader equity market is driven by a "very different set of fundamentals," including domestic consumption, infrastructure investment, and service-led growth. The country is also set to benefit from recent trade deals struck with the European Union and the U.S. that significantly reduce tariffs on Indian goods.

"From an equity market perspective, improved market access to Europe would disproportionately benefit domestically listed Indian companies with global aspirations, particularly in industrials, pharmaceuticals, specialty chemicals and select consumer exporters," Desai said.

The iShares MSCI India ETF has gained 2.3% this week, bucking the pessimism in other emerging markets.

Brazil is another strong hedge against the AI trade, and arguably, a much cheaper one.

The iShares Brazil MSCI ETF currently trades at 10.6 times the next 12 months' earnings, below the India ETF's price/earnings ratio of 21.7 and the S&P 500's 22.8 times earnings.

It's also tech-light, unlike Taiwan and South Korea. Brazil tilts more toward financials and commodities -- it is one of the world's major sources of iron ore, and has vast, underdeveloped rare-earth deposits.

The biggest risk is Brazil's coming presidential elections. Volatility could increase if left-wing incumbent Luiz Inácio Lula da Silva wins in October. But then again, if a right-wing candidate were to win, it could spark a rally in Brazilian equities, experts say.

AI or no AI, it's an opportunity we wouldn't want to miss.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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(END) Dow Jones Newswires

February 06, 2026 03:30 ET (08:30 GMT)

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