View from the markets: Why have emerging market tech stocks been so volatile?

Emerging-market semiconductor and technology hardware stocks are highly volatile because uncertainty about AI's economic and earnings impact makes small pieces of new information produce large forecast and price revisions, despite strong expected long-term earnings growth.

• The relevant EM tech index has fallen back near its late-July low, remains 1.8% above that level, is 28% below its July peak, and is still up 47% year to date.
• Estimates of AI's impact on the economy and corporate profits vary widely, creating unusually high uncertainty around EM technology hardware stocks.
• The standard deviation of earnings estimates for EM tech hardware stocks rose from 10 at the start of the year to 82, while the equivalent variation for non-tech stocks stayed near five.
• Because forecasts are so dispersed, marginal information can trigger a significant change in expected corporate profits and consequently in stock prices.
• Current forecasts imply earnings growth of nearly 90% over the next two years, making the precise outcome less important for long-term investors than the likelihood that growth remains materially positive.

Takeaway: Investors with a long horizon should look beyond the sharp drawdowns and focus on the prospect of strong earnings growth, while accepting that uncertainty around AI will continue to generate substantial volatility.