Thoughts from the EM Equity desk: AI index concentration

Jul 03, 2026
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Guido Giammattei
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Dijana Jelic

Our EM Equity team examines how AI-driven shifts in the MSCI EM benchmark reflect genuine technological leadership and earnings growth but can also present challenges for investors.

Key takeaways:

  • Taiwan and South Korea dominate indices: the MSCI EM Index has transformed dramatically over the past decade, with these countries now accounting for over half the index, driven by AI infrastructure buildout and semiconductor leadership, while China's weight has fallen below 20%.
  • Unprecedented market concentration levels: the top five benchmark constituents represent 35% of the index, with less than 25% of stocks outperforming over the past year. However, while this is extreme, it is worth nothing that this concentration has been accompanied by substantial earnings growth and technological advancement.
  • A corporate governance shift: meaningful legislative reforms in South Korea are promoting increasing shareholder focus and are addressing the equity market's longstanding discount. This represents a powerful multi-year theme as governance practices and shareholder returns improve across the country.
  • AI opportunity set expanding beyond leaders: beyond current semiconductor giants, second- and third-order beneficiaries are emerging across semiconductor design, ASIC development, power infrastructure, cooling technologies, testing equipment, networking, and industrial automation.
  • Outside of AI: quality stocks and domestic sectors, such as consumer and financials, appear relatively cheap with strong returns on equity after being out of favour. In our view, emerging market equities can outperform their developed market counterparts, driven by superior fundamentals, improving earnings growth and a weaker US dollar.

Read our full piece here


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