The AI Trade Is Global: Derek Yan on Dollar Weakness, EM Tech, and Hidden Concentration Risk

In this episode of Lead-Lag Live, I sit down with Derek Yan, Senior Investment Strategist at KraneShares, to explore how the next phase of the AI boom may be driven by emerging market technology companies rather than US mega caps alone.

With nearly 40 percent of the S&P 500 concentrated in just ten names, Derek explains why investors may be underexposed to critical parts of the global AI supply chain, including semiconductor manufacturing, memory production, and materials essential to infrastructure buildout.

We also discuss how a weakening US dollar has historically acted as a powerful tailwind for emerging market equities and why improving fundamentals, lower valuations, and AI-linked demand could position EM technology for a multi-year cycle of outperformance.

In this episode:
– Why S&P 500 concentration is near decade highs
– How emerging markets drive AI manufacturing
– Why memory chips are a bottleneck in AI growth
– How a weaker dollar benefits EM equities
– Where advisors may be missing diversification

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.

#ArtificialIntelligence #EmergingMarkets #Semiconductors
#StockMarket #SP500 #KEMQ

Transcript

Commodity Supercycle Flashback

SPEAKER_00 0:00

EM has a huge commodity cycle. When China was like building out infrastructures in the 2000s, right? Like you have huge like real estate boom, you have huge like real like railroads and highways, airports, all those build out is like creating a general commodity boom. Then uh in the 2015 to 2020, you have like a lot of emerging markets build out their own technology and uh digital platforms like in China, in Southeast Asia, in South Korea, there's so many like uh internet companies like become like big platforms that dominate their domestic consumer market. Now you have a catalyst of live both, right? Like in a tech space.

Tech Platforms Rise Across EM

SPEAKER_01 0:53

So it's my birthday, and this year I'm celebrating by giving a special gift away to one of you. And to officially wish a happy my birthday to you, I've had this tote with a few surprises from our signature True merch portfolio. And it's not just random merch. Inside, you'll find some items that really at least signal you know exactly what you're doing in these mergers. And the tote, well, it won't hedge your portfolio, but it will make you look smarter than anyone pretending they know what risk on means at the grocery store. If you want it, here's what you need to do. Follow lead leg report on X, follow Mela underscore Schaefer on X, subscribe to Lead Leg Media on YouTube, and like and share this video. Only one person gets the toe, but since everyone gets our content, it's really a happy my birthday to all of you. I'm your host, Melanie Schaefer. Welcome to Lead Leg Live. Today we're talking emerging markets, the dollar, and where AI exposure is really coming from right now, especially as U.S. leadership stays narrow and investors start looking harder at diversification. My guest today is Derek Yen, a senior investment strategist at Crane Shares. Derek, it's great to have you back.

SPEAKER_00 2:06

Thank you for having me today.

SPEAKER_01 2:08

So to kick things off, US equities have become increasingly concentrated in a handful of megacap names. Is that creating a real opportunity, uh, do you think, or for emerging markets right now? And how should investors think about diversification at this point uh in the cycle?

SPEAKER_00 2:25

Yeah, I think that's kind of like um a most important um phenomenon right now, right? Like for investors, um especially when everybody owns like SP 500 or NASDAQ 100. If they check their top 10 holdings now in SP 500, that's like 35 to 40 percent um concentrated in those 10 names. Um, we have never seen that concentration level, uh, at least over the last 10 years. So that just means like we our agri-market benchmark is primarily driven just by a few names. Um could be good, could be bad, um, but like just look at their earnings contribution, I think it's lagging their market cap. Um so which means in the future they have to deliver the earning growth. Um if if it's not going to happen, then you do have some like issue. Uh now the violation is kind of like expensive. Um so just like for investors, uh natural thinking is really how to broaden the trade, right? Within the US, we're going international. Like for international or uh emerging market, I think one of the um the benefit is just like they have a lower, relatively lower validation. Um so that's something like to really explore more opportunity. And um often like EM is something offer like great diversification, um, some like lower correlation versus the US equity. So adding EM to the portfolio can um benefit investors to that point.

SPEAKER_01 4:08

Yeah, and you know, talking about uh fiat and and currencies, the the US dollar has been a headwind for emerging markets. Derek, if the if the dollar stabilizes or starts to weaken, how meaningful could that tailwind be for uh emerging market returns?

SPEAKER_00 4:26

Yeah, and um, I mean like currency is kind of like the quiet killer for EM returns over the kind of like past decade. Um well like currency like for US dollar is still like the world reserve currency. So like dollar's been strong forever until uh I think like now Trump administration is taking a different approach. Uh you heard from Mr. President um that he likes the weekend dollar. Um he loves it. Uh I think that's his intention, like to throw a trade war like on the trade, is like bring the manufacturing job back to US, which means you have to um keep the dollar probably weakened. Um and you have like I think new fat shares coming to willing to cut rates more. Um so all those like monetary setup or just like the government policy setup is really geared towards more um weakening dollar going forward. Um so previously, in look looking at like long-term, the EM actually is really benefited from like weakening dollar previously. So if we think the dollar is going to be continue to be weakening uh over the last next uh say two to three years, uh I think EM is something worth looking at um because the currency cycle.

SPEAKER_01 5:54

Yeah, and uh I want to ask you a little bit about last year and looking into uh 2026. But I mean, emerging markets had a really strong 2025. What when you look at 2026, are we still early in the multi-year cycle or expectations sort of getting ahead of those uh fundamentals?

SPEAKER_00 6:11

Yeah, I think like just like look at the diversification trade or broadening trade, it already happened a little bit last year, like in 2025. Um the EM outperformed US. I think like that didn't happen quite often, right? Like if you look at like last 10 years. Um a lot of investors, oh, that's could be just one-off. But even after rally, uh the validation, the the comparative um like look like a for PE of many EM indexes is still like um low double digit digit compared to kind of like 2030 um for many US indexes. So EM is still cheap, right? So that's like good news. Um and I think like one way to look at a EM, um, you do have like this um this cycle, right? Like look at like 2000, I think like there's like a multi-year EM bull market uh just before the 2008 financial crisis. Uh I think we're in a very similar situation here where the validation is very uh cheap in the uh emerging market, and you do have fundamentals improving. You have like um earnings revisions uh look getting better, especially around the technology side. You have this like global AI build out with a lot of key players actually um exist in the emerging markets. Um you do have, I think like China is like one of the elephants in the room that they are building their own ecosystem uh in the AI. Um you do have um all those catalysts, I think, like in the critical uh materials as well. So that's just like creating um, I think, um, multi-year uh catalyst for the emerging market to outperform uh likely. So adding a little bit of YM to the portfolio, I'm I assume many investors is really really US focused, US centric. Um, they may don't even bother go international, but I think that's been right for, I mean, 10 years. So that's a long time. But like to really think strategically for the portfolio construction, um, adding international and yen, um, especially I think like geared towards like um where a specific uh flavor of yen is very important for investors this year.

Birthday Tote Giveaway

SPEAKER_01 8:43

Right. And uh the there's uh obviously a connection between commodity exports and tech. Um but it I mean that there's rotation that goes back and forth. In today's setup, which side looks more durable to you and why?

Narrow US Leadership And Valuations

SPEAKER_00 8:56

I think it's a very interesting question because like it's um it looked like the history, right? Like EM has a huge commodity cycle when China was like building out infrastructures uh in the 2000s, right? Like you have huge like real estate boom, you have huge like real like railroads and highways, airports, all those build-outs like creating a general commodity boom. Then uh in the 2015 to 2020, you have like a lot of emerging markets build out their own technology and uh digital platforms like in China, in Southeast Asia, in South Korea, there's so many like uh internet companies like become like big platforms that dominate their domestic consumer market. So now you have a catalyst of literally both, right? Like in a tech space, you do have like a big catalyst from like AI, um, think about like the um SK Kinics, the Taiwan semiconductors, those names have been doing great. Uh for the commodity side, it's more, it's it's less the general commodity, but more where specific categories, uh, including I think like power in the um electricity or just like um the grid upgrade, um, some like critical material, those things are like facing uh in kind of like bottleneck for a lot of future technology development. So even some of the commodity become a technology relevant. Um so I think like this is kind of like a sustainable technology boom, that some commodities gonna be um in demand because of that structural boom as well.

SPEAKER_01 10:47

Yeah, and I mean you you spoke about it just now, but the the there's a relation between all of these different things involved in in tech with the commodities. But then if we take it all, if we set take a step back, I guess, and and talk specifically about AI. I mean, people usually jump straight to US hyperscalers. Can you walk me through the emerging market role and it in the AI value chain, uh and even the materials that support it? Uh China's AI ecosystem is moving fast.

SPEAKER_00 11:14

Yeah, I mean, like look at like just the global semifonductor ecosystem, like where I think US is very like centric on the design, right? Like you have like Nvidia, like you have all those like big like chip companies doing the design, but like for a lot of EM companies, they do the manufacturing. I think TN TSMC is like I think the famous one, their chip manufacturing capability uh is way beyond uh the rest of the world, right? So uh I think they have a very critical uh packaging like technology called Cobos. Like they're like, I think those technologies really give them the edge, just being kind of like the like monopoly in the chip manufacturing side, where now like China is catching up in a lot of those chip manufacturing. Um they're building their own uh chip manufacturers. Um that's kind of like an ecosystem in Asia. Um then on some of the SAMI part, right, especially on memory side, uh, we talk about the HBM, uh, which is critical for database uh in the US because the bottleneck uh is really the memory chips. So those memory chips, you have like big players like SK Hynex who dominated in this uh HBM uh membership, uh, and they're kind of like the most important supplier to Nvidia. So you have those very critical players that's like really global leaders uh out there in the EM countries. Um, that I think if you just focus on the developed country or just focus on the US, you're missing out uh a big chunk of the opportunity happening in the AI picks and shoulders.

SPEAKER_01 12:57

Yeah, so as the as this all sort of takes shape, what does this mean for investors who are trying to size the opportunity, but also you know be aware of the risk?

Dollar Direction And EM Currencies

SPEAKER_00 13:05

Yeah, I think like investors they have um kind of like a very heavy US-centric portfolio, right? And within that portfolio, they are very concentrated to the the mega cap names. Um so I think like if investor can like trim down a little bit that position and uh looking for more diversified allocation, um, that could kind of like balance the the alpha or balance the risk exposure a little bit, um, going to the international, going to the EM. Then for the EM, I think like um the technology part and the growth part is now um like is on a structural multi-year bull market, um, driven by the AI build out, driven by its own like consumer electronic, it's its own like digital economy upgrade. There's a lot of opportunity in the EM that's ready to um take off because uh improving fundamentals and it's relatively cheap in validations. Um and as we said, the currency is probably gonna be another big driver for the EM, especially the EM growth, as if Fed's gonna cut rates and global central bank is gonna follow, um, lower interest rate generally favors the growth equity uh and especially the the tech technology players who have like very big cash flow in the future. So those if discount rate is lower, uh the value should be higher. So with all that, um, we think like the emerging market technology sectors probably is a good allocation for investors uh if they think um diversifying from the current like mega capital-centric US equity makes sense. Um and that could be their EM allocation and till towards the technology.

SPEAKER_01 15:03

Yeah, so the uh to be a little bit more specific now for advisors who are looking at allocations, what differentiated exposure does KEMQ actually give them inside emerging markets tech? And how would you think about its role in a modern global equity uh portfolio, Derek?

SPEAKER_00 15:20

Yeah, so at CraneShares, um we have uh uh CraneShares Emerging Market Technology ETF. Um the ticker is KEMQ. Um so that really just like give you direct exposure to the the emerging market technology exposures. So the fund includes in uh names like uh uh TSMC, uh SK Heinex, but also many other like digital uh internet companies that's really uh in China, in Southeast Asia. So I think like that exposure is quite concentrated but unique to really capture this weight of the broadening trade, uh especially around the EM, around EM growth, around EM tech. Um so KEMQ, I think is uh is a good allocation uh for investors who are looking at very diversified exposure outside of the US.

SPEAKER_01 16:15

Yeah, and uh just to finish off, Derek, for anyone watching who wants to learn more, where's the best place for them to find crane shares, research, and keep up with your work?

SPEAKER_00 16:23

Yeah, investor can go to crane shares.com. Uh and for more specific fun details or just information on the KEMQ, uh people can go to crane shares.com slash KEMQ.

SPEAKER_01 16:38

Awesome. Well, thanks so much for being here, and thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Light Live.