Market and Performance Overview
Emerging markets posted a robust quarter, rising 10.6% in Q3 2025 as measured by the MSCI Emerging Markets Index, outpacing developed markets. A notable driver of this outperformance was Asian exposure to artificial intelligence (AI) and technology-enabled growth, with China delivering among the strongest regional gains amid policy support and improving domestic demand.
Against a backdrop of moderating global inflation and tentative policy normalization, equity markets in Asia benefited from constructive earnings visibility and the continued adoption of AI-enabled business models. The clear tilt toward technology-enabled growth stocks helped distinguish Asian equities from peers in other regions and contributed to the portfolio’s relative strength within the ClearBridge Emerging Markets Strategy.
Asia’s AI Tilt and Stock-Level Dynamics
Within Asia, exposures to AI-related beneficiaries—semiconductors, cloud infrastructure, and AI software platforms—generated outsized returns. Companies positioned to monetize AI-driven productivity gains by enterprises found greater buyer receptivity, supported by corporate digital transformation cycles and state-backed investments in technology ecosystems. The strategy’s emphasis on high-quality earnings and sustainable margins remained a common thread as investors priced in longer-duration growth in a lower-for-longer interest rate environment.
In China, the AI and tech-adjacent sectors benefited from a mix of improving demand in manufacturing, policy-backed guidance supporting innovation, and a clearer path for domestic consumption recovery. While regulatory and geopolitical headwinds persisted, the market grappled with a material uplift in project pipelines and a more constructive capital allocation backdrop that favored productivity-enhancing tech tools and platforms.
Regional Contribution and Macro Backdrop
Beyond China, other Asian markets contributed to gains through a blend of resilient earnings, stabilizing commodity prices, and relatively favorable capital flows. Southeast Asia and Korea benefited from export-led demand for high-tech equipment and components, while India offered a mix of services and consumer-oriented growth that complemented the broader AI-enabled growth narrative.
The macro environment in Q3 2025 supported risk assets with modestly improving inflation metrics, easing growth deceleration in several large EM economies, and a still-accommodative monetary stance in many markets. These conditions helped sustain multiple expansion for quality growth stocks tied to AI and digitization, while discounting some of the more cyclical names that lagged during the quarter.
Strategy Positioning and Risk Considerations
The ClearBridge Emerging Markets Strategy remained focused on companies with durable earnings, healthy balance sheets, and exposure to AI-enabled secular growth. The portfolio balanced alpha-generating stock selection with risk controls designed to maintain resilience during fluctuations in global liquidity and regulatory shifts in key markets.
Key risk considerations include policy changes in large EM economies, potential shifts in global demand for technology goods, and the evolving competitive landscape for AI platforms. The team continues to monitor earnings quality, unit economics, and management teams’ ability to translate AI investments into measurable profit growth.
Looking Ahead
As AI adoption accelerates and digital transformation remains a central theme for emerging markets, the strategy aims to capitalize on select pockets of sustained earnings growth and improving macro catalysts. The team remains disciplined in stock selection, focusing on companies with strong cash generation, scalable AI-related franchises, and the resilience to navigate ongoing regulatory and geopolitical developments.
Conclusion
Q3 2025 demonstrated that Asian AI exposure can be a meaningful driver of outperformance within emerging markets. By emphasizing high-quality growth tied to AI-enabled productivity, the ClearBridge Emerging Markets Strategy is positioned to participate in ongoing secular trends while managing downside risks through disciplined risk controls and rigorous fundamental analysis.
