Most investors have heard the story about how concentrated the US share market has become. A handful of giant technology names, the so-called “Magnificent Seven”, now drive a huge share of returns. It has become one of the most talked-about features of developed markets, and for good reason.
What gets far less attention is that the same thing has quietly happened in emerging markets, and in some ways, it is even more pronounced. The countries and companies have changed, but the underlying force is identical: the artificial intelligence boom is pulling an enormous amount of money into a very small number of stocks.
It is tempting to think of emerging markets as broadly diversified, with a little bit of China, India, Brazil, South Africa, the Middle East and South-East Asia all blended together. On paper that is true: the main emerging markets index holds more than 1,200 companies across two dozen countries.
Under the bonnet, though, the picture is very different. Today around four dollars in every five invested in the index are allocated to just four countries: Taiwan, China, South Korea and India. The shift over the past couple of years has been dramatic. Taiwan and South Korea have surged, while China and India have fallen back.
Country weights in the emerging markets index. Source: MSCI / Korea Centre for International Finance estimates.
What stands out is how quickly this has happened. In less than a year, Taiwan has overtaken China to become the single largest country in the index, and South Korea has roughly doubled its weight to sit alongside it. India, which many expected to keep rising, has slipped back to its lowest weight in more than six years, down from a peak of around 20% in 2024. The engine behind all of this is the same one driving US markets: demand for the advanced computer chips that power artificial intelligence.
The concentration is even starker at the company level. Taiwan’s TSMC (the world’s most important chipmaker) accounts for around 14.5% of the entire emerging markets index. Add South Korea’s Samsung and SK Hynix, the two giants of computer memory, and just three companies account for close to 29% of the whole index. Stretch that to the ten largest holdings and they represent roughly a third of the index.
Three semiconductor companies make up close to 29% of the emerging markets index. Source: MSCI index factsheet, 29 May 2026.
Add names such as Taiwan’s Hon Hai (the assembler behind much of the world’s electronics) and a short list of other chip and technology businesses, and a clear pattern emerges. Buying “emerging markets” today increasingly means buying into the global supply chain for artificial intelligence.
This concentration has had a real effect on how professional fund managers have performed. Many active managers had owned these chip and memory companies, but typically in smaller amounts than the index, because for years they looked expensive relative to their earnings. As these same stocks have raced ahead on AI enthusiasm, being underweight in them has been costly.
The chart below shows the gap. Over the past three years, the technology-heavy part of the emerging markets index has left the broader market far behind, turning $100 into around $249, versus $160 for the index as a whole.
Growth of $100, end-2022 to end-2025. Source: MSCI index returns (EM Information Technology vs broad EM).
None of this means these are bad companies, TSMC, Samsung and SK Hynix are among the most important businesses on the planet. But there are two things worth keeping in mind.
Our approach has not changed. We continue to favour genuine diversification across countries, sectors and styles rather than letting a portfolio quietly become a concentrated bet on one theme. Periods like this are a useful reminder that what looks like broad exposure can sometimes be anything but.
General Advice Warning - Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it's appropriate to you, in light of your objectives, financial situation or needs.
The Investment & Research team at PSK are always monitoring market conditions and data points to ensure portfolios align with our overall long-term objectives. If you’d like to discuss any of the points raised, please contact your Adviser or call us on (02) 8365 8300.
