Emerging Markets: Look Beyond Chips and Memory

Emerging-market stocks have been among the strongest performers since early 2025, carried by the global build-out of artificial intelligence. Look closer, though, and the rally rests on a surprisingly narrow base.

A Narrow Rally

The ten largest companies make up roughly 40% of the main emerging-market index, and just three chip and memory makers in Taiwan and South Korea account for nearly a third of it. In the second quarter of 2026, those three stocks delivered more than 60% of the index's return. These are strong businesses with real earnings growth, but that level of concentration should sound familiar to anyone who has watched the US market in recent years.

Concentration Risk Hiding in Plain Sight

Many investors hold emerging markets through index funds precisely because they expect diversification. Today, a slowdown in AI spending, a shift in demand or a supply chain disruption could hit those portfolios much harder than expected.

• Own AI exposure, but don't let a few giant names dominate
• Look at lesser-known suppliers across the technology chain
• Consider industrial, reform-driven and locally focused companies

Opportunity Beyond AI

The broader opportunity set is wide: industrial modernization in China, manufacturing shifting to Vietnam, and governance reforms in South Korea that are unlocking shareholder value. Businesses that serve their home markets can also be less exposed to global swings.

What It Means for You

Geographic diversification only works if the underlying holdings are truly diversified. If you hold emerging markets in your portfolio, we are happy to review what you actually own and whether it still matches your goals.