China’s semiconductor ambitions returned to the spotlight following the recent meeting between President Trump and President Xi. While the US administration reportedly signaled willingness to permit exports of certain downgraded or older-generation AI GPUs into China, the more notable takeaway may have been China’s relatively muted reaction. Rather than relying on controlled access to foreign technology, China appears increasingly focused on accelerating the development of its own semiconductor ecosystem.

While the AI cycle continues to demonstrate remarkable strength, China’s push toward semiconductor self-reliance increasingly appears to represent an additional structural driver for the industry – one that could persist largely independent of the pace or duration of the current AI infrastructure cycle.

A focus on a domestic opportunity for self-reliance

The scale of the opportunity remains significant. China is already the world’s largest semiconductor consumption market, representing well over USD200 billion of annual chip demand and likely continuing to grow meaningfully over the coming decade. Yet domestic self-sufficiency across many semiconductor categories remains relatively low, leaving substantial room for domestic substitution over time. Even within analog and power semiconductors – categories generally viewed as more achievable for domestic suppliers – the opportunity remains large. Industry estimates suggest China’s power management semiconductor demand alone already represents a multi-billion-dollar market, while domestic suppliers still account for a relatively modest share. If China materially increases domestic semiconductor content over the coming years, tens of billions of dollars of annual value could gradually shift toward Chinese suppliers.

China still faces important technological bottlenecks. Advanced EUV lithography remains effectively inaccessible, while gaps persist across certain leading-edge manufacturing equipment, inspection and metrology tools and advanced materials. However, recent developments suggest China continues to make incremental progress across multiple parts of the semiconductor stack despite these restrictions. Domestic memory players have advanced meaningfully in NAND and DRAM, while progress in high-bandwidth memory (HBM), advanced packaging and other areas continues to evolve. More broadly, as the saying goes, necessity is often the mother of invention, and technological constraints themselves can become catalysts for accelerated domestic innovation.

Lessons from solar, batteries and EVs

Importantly, China has already demonstrated an ability to achieve global scale and competitiveness in industries once dominated by foreign incumbents. The country now holds leading positions across solar panels, batteries and electric vehicles, while also becoming increasingly competitive in industrial automation and advanced manufacturing more broadly. Regardless of one’s geopolitical perspective, China’s long-term willingness to commit capital, engineering talent and policy support toward strategic industries should not be underestimated.

As the AI infrastructure cycle evolves, bottlenecks have gradually expanded beyond AI accelerators and memory into broader areas of the semiconductor supply chain. More recently, power management integrated circuits (PMICs) have emerged as an area experiencing tighter supply-demand dynamics, driven by rising demand from data centres and AI infrastructure. AI servers require increasingly sophisticated power architectures, translating into higher semiconductor content and more advanced PMIC requirements. These products typically command higher pricing and more attractive margins, while stronger AI-related demand may also help stabilize pricing conditions across broader analog semiconductor markets.

Against this backdrop, we believe companies positioned within China’s domestic semiconductor ecosystem could benefit from these longer-term trends. One example within our Emerging Markets portfolio is Silergy Corp. (6415 TT), a China-based analog semiconductor company and one of China’s leading domestic suppliers of PMICs.

Why PMICs are important

PMICs are semiconductors responsible for regulating and distributing electrical power within electronic systems, helping ensure that processors, servers, vehicles and industrial equipment receive power efficiently, reliably and safely. Unlike leading-edge AI accelerators, analog and power management semiconductors are embedded across a broad range of everyday electronic applications.

Headquartered in Hangzhou, Silergy designs analog and mixed-signal semiconductors serving industrial, automotive, consumer electronics, computing and communications applications. While the company is gaining increasing exposure to AI servers and data-centre-related applications, its business remains diversified across multiple end markets, which in our view provides a more balanced way to participate in both semiconductor self-reliance and broader electronics content growth.

Silergy is already one of China’s leading domestic PMIC suppliers, yet its market share within China’s broader analog and power semiconductor market likely remains relatively small, suggesting a potentially long runway for continued share gains over time.

While market attention remains concentrated on the most visible AI beneficiaries, some of the more durable investment opportunities may emerge deeper within the semiconductor supply chain and away from the headlines. China’s semiconductor ambitions could ultimately prove to be one of the more important long-term trends still unfolding beneath the surface of today’s AI cycle.

Earnings remain resilient, but growth is concentrated, macro risks are building and selectivity is becoming critical.

Resilience in a tense environment

The Q1 reporting season underscores a growing divergence in global earnings. While US earnings growth remains robust, it is increasingly concentrated in AI-related industries. In contrast, Europe remains in a low-growth, late-cycle environment, while Japan continues to benefit from structural tailwinds. At the same time, a gap is emerging between the AI narrative and broader earnings. While AI-related sectors are seeing strong growth, the benefits have yet to spread across the wider economy.

The conflict in Iran has driven a sharp rise in oil prices and renewed volatility across equities and bonds, reflecting concerns around inflation and energy supply disruptions. It has also led markets to reassess the path of interest rates, with higher energy costs reducing the likelihood of near-term policy easing. This could test the resilience of corporate earnings through 2026.

So far, corporate earnings in developed markets have been more resilient than expected, despite successive macro shocks. Part of this resilience reflects lessons learned over the past five years. The pandemic period, in particular, has led to improved inventory management, stronger cost discipline and a greater willingness to implement cost optimization programs. More broadly, companies appear better equipped to manage their cost base, and in some cases, have demonstrated persistent pricing power. This has been particularly evident in industrials and technology, where contract structures and product differentiation have enabled effective price pass-through. These factors have helped preserve margins even as demand has plateaued or softened.

However, without a swift resolution to the conflict in Iran, global growth could decelerate further, exposing more vulnerable areas of the market. Discretionary spending, manufacturing and energy-intensive sectors such as transportation and logistics are likely to be most at risk. Rate-sensitive sectors, including residential real estate and REITs, could also face valuation pressure.

Looking at the broad small-cap market, balance sheets are structurally more fragile today than they were a decade ago when companies were deleveraging following the Global Financial Crisis. In the current environment, smaller companies are more exposed to rising interest costs and refinancing risk, particularly at the lower end of the quality spectrum.

Positioning for resilience

In this environment, a quality-focused approach centred on sustainable EPS growth remains critical. Our strategy continues to prioritize companies with strong balance sheets and high returns on equity.

As illustrated by our portfolio characteristics, our Global and International Small Cap strategies exhibit the following attributes:

Source: IDA, Bloomberg, MSCI

The lower leverage of these strategies points to less balance-sheet risk and better ability to navigate higher-for-longer rates. At the same time, the higher operating margins and stronger ROE, alongside faster forward EPS growth, are indicative of higher-quality businesses with more durable profitability and earnings power than the benchmark.

In addition, we continue to focus on companies exposed to structural growth drivers. Themes such as electrification, automation, health-care innovation, defence and reshoring offer improved visibility over the medium term. These areas can provide both defensive characteristics in a slowdown and operating leverage in a recovery.

Driven by years of underinvestment, rapid urbanization and the need to adapt to a power-driven, technology-led world, infrastructure spending is a key tool governments use to stimulate economic growth. Regardless of what drives the allocation, civil infrastructure – the systems that underpin essential societal functions – remains a foundational focus of government spending.

The US government’s current focus on infrastructure

The 2021 Infrastructure Investment and Jobs Act (IIJA) is in full swing and will last until 2030 and beyond. The approximately USD1.2 trillion US expenditure bill is allocated to roads, bridges, transport safety, transit, freight, chargers, power and broadband.

Spending on US highways and streets is currently at historic highs, reaching a seasonally adjusted annual rate of approximately $149.5 billion in January 2026. This sector remains a primary driver of public infrastructure growth, bolstered by long-term federal funding. But despite high spending, the American Society of Civil Engineers (ASCE) estimates a $684 billion funding gap for roads over the next decade (2025–2035).

The business cycle is such that architecture and engineering firms gain from the bulk of the work at the onset, executing on planning and design. Then come the bids and proposals on work and equipment, which ultimately fill the backlogs of suppliers and contractors.

The right tools for the job

Based in Downers Grove, Illinois, Federal Signal Corporation (FSS US) manufactures specialized equipment for infrastructure maintenance, public safety and environmental cleaning. The company operates between 24 to 27 principal manufacturing facilities worldwide and directly manages over 40 service centres. Already within our portfolio, the company is one that may be positioned to benefit from infrastructure spending by providing the necessary equipment and technology to support civil infrastructure projects.

Federal Signal’s diversified business groups offer products that serve multiple infrastructure subsectors. The Environmental Solutions Group is the largest manufacturer of dump trucks in the United States. They also manufacture street sweepers, sewer cleaners and industrial vacuum loaders, safe-digging and road-marking equipment. The Safety and Security Systems Group provides technology and systems used by first responders and industrial facilities to protect lives and property.

Federal Signal delivers a comprehensive suite of equipment designed to support a wide range of IIJA-funded project areas, as highlighted in the table below.

Cementing a provider of construction materials

Large scale infrastructure projects such as bridges and transit require longer planning and often are fully realized toward the tail end of the spending period. Global Alpha is positioned through Eagle Materials Inc. (EXP US), an important producer of cement, to strategically capture the roughly USD550 billion allocated for new construction materials.

Eagle Materials possesses regional market dominance: The company’s 70+ facilities are concentrated in the US Heartland, Sun Belt and Mountain West. These inland markets are protected by high transportation costs, which limit competition from cheaper foreign imports.

Between 2024–2025, Eagle invested heavily in modernizing plants like the Laramie, Wyoming facility, increasing cement output by 50% specifically to meet the rise in IIJA-funded municipal projects. Within the same time frame, Eagle converted nearly 100% of its cement capacity to Portland Limestone Cement (or PLC). This low-carbon product is increasingly required for government-funded projects that prioritize environmental sustainability.

Strategically, the company shifted its sales mix toward non-residential and public infrastructure, sectors projected to grow by roughly 5% in 2026, to offset recent softening in the residential housing market.

Global phenomena

Civil infrastructure is being accelerated on a global basis; China spent USD550 billion on transport infrastructure in 2025 alone. Japan just began a USD140 billion mid-term plan for the implementation of national resilience. Global Alpha is exposed to global civil infrastructure buildout through Sany Heavy Equipment International Holdings Co. Ltd. (631 HK).

Hong Kong-listed Sany is the world’s third-largest heavy equipment manufacturer. Their equipment is designed with a focus on being « easy to own, easy to operate and easy to service, » prioritizing essential functionality over excessive technical complexity. The company is also a global leader in concrete machinery, especially after acquiring the legendary German brand Putzmeister. Products include truck-mounted pumps, stationary pumps and concrete mixers. Large-scale engineering contractors account for approximately 45% of Sany’s revenue.

That demand is increasingly coming from outside China: overseas markets now contribute 64% of revenue, led by Africa, where sales surged 55% on the back of infrastructure buildouts. To capitalize on this momentum, Sany has shifted its mix toward infrastructure-heavy “civil works” applications, helping drive a 41% increase in net profit in 2025.

Keeping assets clean, clear and operational

Global Alpha also holds Bucher Industries AG (BUCN SW), a Swiss industrial group that provides specialized machinery and components for essential infrastructure, specifically through its Bucher Municipal and Bucher Hydraulics divisions. Unlike heavy civil construction firms, Bucher focuses on the maintenance, cleaning and operational safety of existing civil assets.

Bucher’s connection to civil infrastructure is primarily functional, ensuring that public and commercial traffic areas remain operational and safe. For sewer and drainage infrastructure, Bucher produces specialized sewer cleaning and water recycling units essential for managing urban water networks and preventing flash flooding on major roadways. Bucher also provides construction site support through its heavy-duty sweepers, specifically engineered to handle the abrasive materials (e.g., aggregate, spoil) found on large-scale infrastructure construction sites.

Civil infrastructure is more than a standalone spending category – it is the operating backbone that enables other critical buildouts, from power and water management to digital connectivity. For Global Alpha, this creates diversified, real-economy exposure to long-duration public investment, spanning both new construction and the ongoing maintenance that keeps cities functioning.

Lime and limestone are materials that have shaped human civilization for thousands of years. Limestone is a common sedimentary rock formed mostly from calcium carbonate. It develops over millions of years from either marine organisms (shells, coral, plankton, etc.) or chemical precipitation in oceans and lakes.

Limestone is converted into lime by burning (calcining) it in a kiln at 1000ºC. Lime can then be mixed with water (hydrated) to form hydrated lime. Finished lime then absorbs CO2 and slowly transforms back to calcium carbonate (i.e., limestone). The lime cycle is one of the oldest known chemical cycles used by humans

Limestone been used as building material for centuries, from pyramids to great cathedrals of Europe, including Notre Dame, Westminster Abbey and St Peter’s Basilica. More commonly it is used as an ingredient in cement and concrete, and in building roads. It is also a widely used industrial mineral, either unprocessed or transformed into a lime derivative.

Limestone is estimated to account for 15% of surface rock on Earth, but high-purity limestone valued in industrial, construction, environmental and agricultural applications is much rarer as are deposits of scale that can be commercially exploited.

Applications across industries

SigmaRoc PLC (SRC LN), a recent addition to the portfolio, is a lime and minerals group targeting quarried materials assets in the UK and Northern Europe. The business is asset backed with over 2.7 billion tonnes of mineral reserves and resources, the equivalent of over 100 years of resources.

SigmaRoc has exposure to the construction, industrial and environmental end markets with applications such as:

Construction

• Quarried limestone and granite materials are used in both infrastructure and residential applications such as the construction of roads, railways, bridges, ports, airports and buildings. The main products include aggregates, asphalt, ready mix concrete, pre-cast concrete and dimension stone.

Industrial

• Lime is used as a flux in steel and copper production to remove impurities and control melt chemistry.
• Quicklime is involved in pulp and paper production.
• Limestone powder is used as a filler in paints and adhesives.

Environmental

• Quicklime, slaked lime and limestone powder remove acidic compounds from flue gas.
• Lime treats drinking water by raising pH, and wastewater by reducing toxicity.
• In soil treatment, lime raises soil pH.

Quarries and their locations

SigmaRoc has an advantage in that it owns quarries. In countries where it does not own quarries (the UK and Poland), it has on-site kilns and long-term supply agreements with the quarry owner. Owning the quarry means fixed costs are manageable and ensures both the quantity and quality of supply.

Having quarries located close to customers has key logistical advantages. Firstly, the weight of the product means it is not feasible to ship long distances. Lime products are dangerous to transport due to lime’s high chemical reactivity. It is classified as corrosive under transport regulations and producers need regulatory compliance to ship. Quicklime degrades over time, meaning shipping long distances is unfeasible, reducing the threat of imports.

Integration, growth and megatrends

The three main lime producers in Europe are SigmaRoc and two privately owned Belgian companies. After those, the market is fragmented and the SigmaRoc has a “buy-and-build” growth model. The strategy is to acquire assets (quarries, lime and limestone businesses, related infrastructure) in fragmented local markets, then integrate them to extract synergies, scale and efficiency.

SigmaRoc has cyclical recovery potential and is poised to benefit from megatrends that support long-term growth. If macro conditions improve – supported by infrastructure spending, lower rates and renewed housing policy – SigmaRoc’s scale and flexibility could drive outperformance. Its diversified presence across geographies also helps smooth region-specific cycles.

Future growth is also supported by the ongoing electrification of economy. This creates a huge increase in demand for batteries, and lime is required in the mining and refining of lithium. European steel – and especially green steel – should also benefit from electrification, so long as the industry is protected from high carbon inputs, potentially reduced import quotas and higher tariffs. Beyond electrification, flue gas scrubbing creates an environmental market for lime, a process that addresses shipping emissions.

Limestone and lime are attractive markets due to high barriers to entry, the irreplaceable nature of product and the lack of material import flow into Europe. With an M&A track record as the foundation for future growth, we believe that makes SigmaRoc a compelling investment in the materials sector.