Resilience in the Reflation World: Concentration, Conflict, and Belief in Emerging Markets

The superposition of the global reflation wave and geopolitical conflicts is profoundly reshaping the asset allocation landscape in emerging markets. In its latest analysis, VanEck points out that the macro tailwinds from early 2026 have shifted: the escalation of the Middle East situation has pushed up energy prices, the US dollar has strengthened due to safe-haven demand, and expectations for a rate-cutting cycle in emerging markets have shortened. Against this backdrop, institutional investors are shifting from early-stage macro trading to structural themes, focusing on AI infrastructure, commodity exporters, and companies with pricing power in China's domestic infrastructure.

Market Background: Reflation and a Stronger US Dollar

In the first half of 2026, global inflationary pressures have risen again, mainly due to shocks in energy and food prices. The Middle East conflict has caused crude oil prices to surge, while supply chain disruptions have pushed up costs for other commodities. The Federal Reserve maintains a high-interest-rate stance, and the US dollar index has climbed to multi-year highs, putting pressure on emerging market currencies and capital flows. Most emerging market central banks have been forced to pause or slow down their rate-cutting pace, with some even reconsidering rate hikes.

Although global economic growth is slowing, the performance of emerging markets is diverging: commodity-exporting countries benefit from price increases, while importing countries face imported inflation and capital outflows. The latest forecast from the International Monetary Fund (IMF) shows that the GDP growth rate for emerging markets in 2026 is about 4.0%, lower than previous expectations but still higher than that of developed economies.

Current Capital Flows: AI Infrastructure and Commodity Exporters

Funds are shifting from broad emerging market indices to specific sectors. AI and its infrastructure remain the biggest structural theme, but trading has moved from the early stage to a crowded area. VanEck points out that excess return opportunities are shifting toward the AI supply chains in Taiwan and South Korea, as well as China's domestic technology infrastructure. Specifically:

• AI Infrastructure: Semiconductor manufacturing (TSMC), packaging and testing, and AI chip design companies continue to receive institutional accumulation. Data center construction drives investment in power infrastructure, including nuclear energy and grid upgrades.
• Commodity Exporters: Copper, aluminum, and uranium miners are structural beneficiaries due to electrification, AI data centers, and nuclear energy project pipelines. Mining companies in Latin America (e.g., Chile, Peru) and South Africa are attracting attention.
• China's Domestic Infrastructure: Policy-supported digital economy, new energy, and high-end manufacturing sectors are attracting capital inflows. Chinese internet platforms and electric vehicle manufacturers are being positioned by long-term funds at low valuations.

Meanwhile, consumption-sensitive and interest-rate-sensitive industries are being reduced. Retail, real estate, and some financial services are performing weakly in the environment of inflation and a stronger US dollar.

Investment Logic Analysis: Structural Drivers

Behind the shift in capital flows, there are three key driving factors:1. Pricing power in a reflationary environment: Companies with pricing power—especially those with inelastic demand or technological leadership—can protect profit margins amid rising costs and currency depreciation pressures. AI chip suppliers and key miners are typical examples. 2. Structural surge in AI demand: As AI applications shift from training to inference, data center construction is entering a peak phase. Despite short-term economic fluctuations, AI capital expenditure remains strong, driving demand for semiconductors, electricity, and cooling infrastructure. 3. Long-term commitment to energy transition: Despite rising macroeconomic uncertainty, global decarbonization targets remain unchanged. Demand prospects for copper, aluminum, and uranium—key materials for electrification and nuclear energy—are optimistic. Resource-exporting countries and infrastructure-building companies in emerging markets benefit directly.

Institutional investors are shifting from cyclical thinking to structural conviction. Commodity exposure is no longer viewed as a short-term hedge, but as part of a long-term portfolio allocation.