Geopolitical Storms, Emerging Market Calm: Why Now is the Time to Buy Underappreciated Sectors

The world is in a state of heightened geopolitical flux. From US-China trade wars to energy shortages in Africa and cyberattacks disrupting supply chains, the risks are real—and they've sent emerging market equities to multiyear lows. Yet, this is precisely the moment for value investors to pounce. The current panic has created a rare opportunity to buy high-quality, underappreciated sectors in emerging economies at bargain prices, particularly in technology and renewable energy. These sectors are not just resilient—they're positioned to thrive as the global order recalibrates.

The Case for Tech: Semiconductor Firms in the Crosshairs—and Sweet Spot

Geopolitical tensions have pushed global supply chains to reorganize, with Southeast Asia emerging as a critical hub for semiconductor manufacturing. Vietnam, Malaysia, and Thailand are now home to a growing share of foundries and assembly lines as companies like Intel and Samsung diversify away from China.

Consider Vietnam's semiconductor sector, where companies like FPT Corporation (FPT.HM) are benefiting from this reshoring trend. Despite fears over trade wars, FPT's revenue has grown at a 15% CAGR since 2020, driven by contracts with global tech firms. Yet its stock trades at just 12x forward earnings—a stark contrast to the 20x+ multiples of its US peers.

The risk-reward here is compelling. While US-China friction could disrupt some supply lines, the long-term trend of Southeast Asia becoming the “new Taiwan” in semiconductors is irreversible. Add to this the weakness of the Vietnamese dong, which has depreciated 10% against the dollar this year, and you get a double boost: cheaper production costs for exporters and a potential currency rebound when global risks subside.

Renewable Energy: Betting on the Minerals That Power the Green Transition

Geopolitical jostling over critical minerals—from lithium in Bolivia to cobalt in the Democratic Republic of Congo—is another arena where value investors can find overlooked gems. The US Inflation Reduction Act's subsidies for clean energy have created a gold rush for these resources, yet companies in mineral-rich emerging markets remain underinvested.

Take SQM (SQM.N), a Chilean lithium producer. Despite lithium prices hitting $70,000/ton in 2022 (down from $80,000 but still historically high), SQM trades at just 15x earnings—far below its 20x-25x average during lithium booms. The stock has underperformed as fears about China's dominance in processing and the possibility of a global lithium glut weigh on sentiment.

Yet the long-term demand for lithium is undeniable. Even if prices stabilize, SQM's low-cost operations (second only to Albemarle) and control of Chile's Salar de Atacama—a lithium-rich basin—make it a structurally strong play. Meanwhile, the Congolese cobalt sector, though riskier due to governance issues, offers opportunities in firms like Cobalt Blue Holdings (COB.AX), which is developing projects in the DRC with partnerships that mitigate political risks.

Navigating the Risks: Currency, Conflict, and Value

Of course, investing in emerging markets requires navigating pitfalls. Currency volatility is the most immediate concern: a strong dollar (driven by Fed rate hikes) can crush returns. However, this is also a buying opportunity. The Turkish lira, Indonesian rupiah, and Brazilian real are all near multiyear lows against the dollar, offering a cushion if these currencies rebound.

Political risks persist—South China Sea disputes, for instance, could destabilize Southeast Asian markets. But here's where value investing principles shine: companies with strong balance sheets, pricing power, or government-backed projects (e.g., state-backed renewable energy initiatives) can weather volatility.

The Bottom Line: A Value Investor's Dream

The current geopolitical landscape is a stress test for emerging markets. Yet the sectors that pass—tech reshoring hubs, mineral-rich energy plays—offer asymmetric upside. The key is to focus on:
1. Undervalued valuations relative to growth prospects.
2. Hard assets (minerals, land) that gain value in inflationary environments.
3. Structural trends (semiconductors moving to Southeast Asia, lithium demand) that outlast geopolitical noise.

For now, the MSCI Emerging Markets Index (EEM) trades at a 10-year low relative to the S&P 500—a stark reminder of investor pessimism. But as history shows, these are the moments when contrarians strike gold.

Investors should allocate 5-10% of their portfolio to this theme, using ETFs like iShares MSCI Emerging Markets Info Tech ETF (EMTG) or Global X Lithium & Battery Tech ETF (LIT) for diversified exposure. For the bold, individual stocks in Vietnam's tech sector or Latin America's lithium plays could deliver outsized gains.

The storm will pass. When it does, those who bought the dip will be the ones smiling.

Joe Weisenthal's articles blend deep data analysis with contrarian insights. This piece reflects his signature style of turning macro risks into actionable investment theses.