Ian Smith, portfolio manager at William Blair, joins Excess Returns to break down emerging markets, global diversification, and why EM may offer a very different opportunity set than US stocks. We discuss AI capex, the role of Korea, Taiwan, China and India, the impact of the dollar, quality investing, valuation, and how active investors can think about opportunity in a world shaped by AI disruption and geopolitical change. William Blair Investment Management https://im.williamblair.com/ The Problem With Quality https://im.williamblair.com/insights/articles/the-problem-with-quality Topics covered: Why emerging markets are not one single trade How AI capex is reshaping EM indexes and performance Why Korea, Taiwan and China are central to the AI supply chain The role of the US dollar in emerging market returns Why EM index concentration is higher than many investors realize What past innovation cycles can teach us about the AI buildout How AI is changing the definition of quality investing Why China’s manufacturing strength creates both opportunity and risk The long-term case for India despite high valuations How William Blair evaluates quality, trajectory and underappreciation Why valuation in emerging markets requires more than simple multiples The one investing lesson Ian Smith would teach the average investor Timestamps: 00:00 Intro 04:10 Why emerging markets are not one market 08:37 Why EM is underrepresented in global indexes 13:16 How the dollar impacts emerging market returns 18:37 AI capex, picks and shovels, and EM supply chains 24:17 How William Blair is using AI in the investment process 28:30 Why quality and growth have decoupled in emerging markets 33:19 Why AI disruption creates opportunity for active managers 37:30 China’s overcapacity, competition and global manufacturing edge 42:00 India’s long-term growth drivers and valuation challenge 47:00 Finding underappreciated quality in EM stocks 52:01 Deglobalization, China and the future of global trade 56:09 The one lesson Ian Smith would teach investors

Finding Quality Growth in Emerging Markets with Ian Smith

Excess Returns 

# Full Transcript

**Podcast:** Excess Returns

## Participants

- **Justin** (Excess Returns)
- **Ian Smith** (William Blair)

## Transcript

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Justin, welcome to Excess Returns. Thank you very much. Pleasure to be here. Today, we wanted to sit down with you and walk through a number of, I think, themes and topics related to global investing and emerging markets. At William Blair, you are the Portfolio Manager on the Global Equity Team, where you and your team build investment strategies that go far beyond the U.S. You know, I think a lot of investors here in the United States are pretty dramatically underexposed to EM and global equities.

And I think perhaps that's where, you know, we'll get into this. That's where maybe the opportunity lies for those investors that are looking for non-U.S. exposure and, you know, more diversification to them. What they're getting if they're allocated heavily to U.S. markets. A lot of the research I think that we're going to work through today can be found on William Blair's site. They're putting out a bunch of great content and some of EM's work is up on there as well.

I thought we would start at sort of like a higher macro level with EM. And then, you know, as we get down into it, we'll talk specific investment strategies and portfolio construction. But where I think we wanted to start with you is, you know, emerging markets have had a very good run here, maybe one of the best runs in the last 15 or 16 years over the past 12 to 18 months on a relative basis. So those that have invested in EM have kind of been rewarded.

But it seems like the war has kind of brought that to a standstill, at least recently. And so I thought it would be good just to get your overall view on the emerging market landscape as you see it today. Yeah, absolutely. A lot of variables, important variables to think about when you think about EM. It's not a sort of homogeneous set of countries or industries.

But yeah, I think to your point, EM started to perform over the last couple of years. I think it's important to remember that EM equities have...

Finding Quality Growth in Emerging Markets with Ian Smith

Transcript

Built for investment professionals

Every day you wait, your competitors are finding
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Finding Quality Growth in Emerging Markets with Ian Smith

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.