Macroscope | Emerging markets have a concentration problem. Investors will have to live with it

KUALA LUMPUR, 24 JULY 2026 —

At the end of last month, South Korea’s share stood at nearly 24 per cent, four points ahead of China, an economy nearly ten times larger. Taiwan’s weight reached 27 per cent, double India’s 11 per cent, according to MSCI data.

Taiwan’s statistics agency forecasts the island’s economy will expand nearly 10 per cent in 2024, driven by AI-related exports. In South Korea, semiconductor shipments surged 180 per cent in the first three weeks of May, compared with the same period a year earlier.

The concentration is extreme: three chipmakers—Taiwan Semiconductor Manufacturing Company, SK Hynix and Samsung Electronics—now represent 31 per cent of the MSCI Emerging Markets Index. Citigroup warned in a report that emerging-market equities are losing diversification benefits as the index’s information-technology weighting rose to 45 per cent from 20 per cent in 2022.

Volatility has climbed with concentration. Since June 22, South Korea’s Kospi index has fallen more than 20 per cent in a broader chip-stock sell-off driven by doubts over the AI rally’s foundations. Retail leveraged ETFs tracking Samsung Electronics and SK Hynix amplified the swings, turning South Korea into the world’s most volatile equity market at times.

Fund managers are adjusting portfolios but cannot ignore the tech giants. JPMorgan highlighted mainland Chinese internet cloud stocks as a potential diversifier within the AI trade. Citigroup estimated the tech sector accounted for 85 per cent of the 28-percentage-point increase in emerging-market corporate earnings since February.

Emerging markets still represent only 11 per cent of the MSCI All-Country World Index while contributing 40 per cent of global GDP and 70 per cent of growth. The AI boom has reversed years of underperformance and revived the asset class, but concentration risk is the price of admission.