AI, inflation and the rise of emerging markets - what's next for global equities?

From late July to early September, Zenith's equity research team travelled overseas and met with investment managers across the International Shares peer group. The trip included more than 70 meetings, covering 91 unique investment strategies in six cities - Boston, New York, Edinburgh, London, Hong Kong, and Singapore. Our team of analysts covering different geographies share key insights from across the globe, unsurprisingly highlighting a recurring AI theme.

The AI evolution theme is universal

AI came up in almost every meeting in each of the cities (no surprises here!), mainly through three topics:

1. The concentration of US earnings now being strongly tied to the theme. Several managers estimate roughly half of the US market's EPS has primary or secondary AI exposure.
2. The sheer scale of the data centre and electrification build-out, with managers seeking to profit by investing in companies producing the inputs in the AI supply chain.
3. How managers were using AI in their own investment processes, which we covered in more depth on our first The Investment Researcher podcast. 

As expected, performance dispersion across the global equities peer group has been significant, largely because managers have been over- or underweighting companies exposed to the AI theme. This has been the case for the past few years; however, the gap between these managers in 2026 has been much wider than before.

The more interesting divergence of views between investment managers on the AI theme was philosophical. One camp of managers still treats the semiconductors sector as a cyclical sub-sector that will mean-revert over the long term. The other camp argues the demand profile for AI-related hardware has structurally changed and the old cycle no longer applies; as such, a higher weighting to these semiconductor stocks is justified in portfolios. Neither camp was a fringe view.

Elsewhere, several managers added to their software exposure following the Software as a Service (SaaS) sell-off in early 2026, believing the substantial de-rating in these stocks had gone further than earnings justified.

By Tom Goodrich, Senior Investment Analyst and Stephen Colwell, Deputy Head of Equities

The heatwaves

We travelled through the UK during one of the hottest periods of the summer, with the relentless heatwaves dominating both the news cycle and everyday conversation. It served as a timely reminder that climate adaptation remains firmly front of mind, not only for policymakers but increasingly for investors.

Infrastructure resilience, energy efficiency and cooling technologies continue to attract capital as extreme weather events become more frequent and the need for adaptation becomes more pressing. Unlike previous years, climate discussions felt noticeably less ideological and more pragmatic, with a greater focus on practical solutions and investment opportunities.

The heat did little to deter tourists. Between meetings, we passed Buckingham Palace and witnessed the Changing of the Guard, peering over a densely packed wall of sunburnt tourists who appeared far more determined to see the guards than the guards were to be seen.

It's (definitely) not coming home

The World Cup provided a constant backdrop throughout much of our trip. Optimism was high initially, but it soon became clear that football was, once again, not coming home. Nevertheless, the tournament generated strong national engagement and positivity across the UK.

At the same time, Wimbledon was in full swing, and one of our analysts took full advantage by queueing from 3 a.m. on his day off for the privilege of purchasing sub-par strawberries and cream and a Pimms at prices that would make even the wealthiest residents of Mayfair flinch. Like financial markets, expectations ran high, outcomes remained uncertain, and sentiment shifted quickly as reality unfolded.

UK managers navigating uncertainty

Among UK-based investment managers, the prevailing mood was constructive but measured. While inflation concerns have somewhat moderated, conversations frequently returned to interest rates, economic growth and geopolitical uncertainty. Rather than chasing market momentum, managers generally appeared more focused on downside protection and portfolio resilience.

Overall, fund managers remained cautiously optimistic as they navigated a turbulent market environment. Adding further complexity to markets, Keir Starmer resigned as Prime Minister during our visit, though it was widely agreed this was overshadowed by the much-anticipated arrival of Zenith's analysts at King's Cross station!

By Ethan Spiegel, Senior Investment Analyst and Jock Allen, Senior Investment Analyst

A World Cup welcome

We landed in Boston on the day of the World Cup final, which made for a great introduction to the trip. Boston and New York were packed with visitors from what felt like every continent, with countless languages on the street. Most investment managers we met were surprised by the visitor numbers to the US, and by how much activity the tournament had pushed into the host cities. You have to wonder how much the World Cup contributed to US GDP in 2026.

"That's my quant!"

Across the managers we spoke to in the US, a prevailing theme was that quantitative (otherwise known as systematic) investment strategies are back in vogue. In our visit to Boston, the epicentre of quantitative investing, we noticed many a manager with a skip in their step.

Based on our conversations, quantitative managers have been the clear winner of global interest and resulting net flows from a broad range of wholesale and institutional clients. The reasons largely come down to these strategies having constrained tracking error targets and providing a more benchmark-aware performance profile, typically at a low cost. Given concentrated market leadership and strong index performance over the past several years, this trend is unsurprising.

Tempered optimism

The mood on the streets of Boston and New York's financial district was cautiously optimistic. Most managers pointed to the AI build-out as the engine driving US economic growth; however, some had reservations. Inflation has remained persistent, the conflict in the Middle East remains unresolved, and nobody wants to guess the outcome of the November mid-term elections in the US.

Against that backdrop, managers have been gravitating toward companies with pricing power. The logic is that input costs are still rising, and margin protection will differentiate performance between companies from here. Helpfully, many of these 'quality' names have de-rated, which gives the managers on our APL a better entry point than they have had in a while.

Talking about pricing power…tipping in New York is now effectively a mandatory 20%, and anything less earns you a conversation with the waitstaff you would rather not have. Coffee across the US has improved markedly over the past few years; however, it still has a long way to go before it challenges the Melbourne coffee culture!

By Brad Antman, Investment Analyst and Quan Nguyen, Head of Equities

Index concentration of Emerging and Asian markets: how are managers dealing with it?

Index concentration was front and centre for most Emerging Markets (EM) managers. Taiwan-listed semiconductor manufacturer TSMC now makes up roughly 15% and 17% of the EM and Asian (ex-Japan) benchmarks, respectively. Korean-listed memory stocks Samsung and SK Hynix also feature prominently in the benchmarks, further increasing concentration.

While these stocks have dominated index weights and returns, most managers have maintained material underweights. A key driver is mandate constraints that cap portfolio positions at 10%. These constraints create a genuine structural issue, capping the level of concentration these managers can hold in semiconductor names, regardless of conviction.

Some managers can replicate the exposure by accessing smaller AI hardware companies. For example, Taiwan-listed IT hardware companies like MediaTek, Delta Electronics and Hon Hai Precision are the most common substitutes for TSMC. Ironically, the substitutes have performed better than TSMC over the past year!

Observations from on the ground

Despite the common narrative of Chinese electric vehicle (EV) dominance, we observed significantly more Teslas in Hong Kong than Chinese mainland brands.

AI adoption among Hong Kong-based investment managers appears slower than what we have observed elsewhere. Interestingly, OpenAI and Anthropic are both banned in Hong Kong. As a result, some managers are reluctant to invest in internal AI infrastructure given the regulatory treatment of these tools remains unclear.

The streets in Singapore and Hong Kong were very busy and lively, though interestingly, the work-from-home culture is less common. With the weather very warm and humid, running in the morning means a long cool-down period unless you want to sweat through your shirt in an important meeting!

Finally, the food, particularly in Hong Kong, is a standout. We have come back well-capitalised in the nutrition department.

What does this all mean for Australian advisers and their clients?

1. Market concentration is becoming harder to ignore - how a manager navigates concentration risk is becoming a key driver of outcomes.
   A small group of companies are driving an outsized share of market returns across both developed and emerging markets. This is creating challenges for active managers, particularly where portfolio or mandate constraints limit how much exposure they can hold.
2. The opportunity set is broadening beyond the obvious winners - attractive opportunities extend well beyond today's market leaders.
   While a handful of stocks continue to dominate headlines, managers are increasingly finding value in less crowded areas, including software, infrastructure, power and secondary beneficiaries across supply chains.
3. Optimism is being balanced with resilience - managers are seeking to participate in growth while building more resilient portfolios.
   Managers were generally constructive on the outlook, but discussions consistently returned to inflation, geopolitics and economic uncertainty. The focus remains on quality businesses, pricing power and downside protection rather than simply chasing momentum.