Emerging-Market Equities Offer More Than Chips and Memory

Emerging markets offer far more than the AI chip rally suggests, despite a concentrated performance driven by a few tech giants. The MSCI Emerging Markets Index now sees its top ten holdings comprise 40% of its market cap, with Taiwan Semiconductor, Samsung, and SK Hynix alone making up nearly a third. This concentration, similar to the US market, presents significant risk for passive investors tied to these few names.

While AI-related companies are valid investments, the opportunity set extends beyond them. Investors should look for "backdoor" AI plays in Asia's broader tech ecosystem, from printed circuit boards to cooling systems. More importantly, opportunities exist in industrial suppliers, governance improvers, and locally focused businesses in China, Vietnam, India, and beyond.

Geographic diversification also remains key. Latin America, Central and Eastern Europe, the Middle East, and Africa offer exposure to commodity fundamentals and the energy transition. These regions, with fewer tech companies, provide valuable diversification from AI-heavy markets, suggesting a wider EM lens is crucial for long-term returns.