The emerging market index has fallen into the same pattern as the American stock market – concentrated and tech-oriented, largely thanks to three chip stocks in South Korea and Taiwan.
South Korea, one of the hottest stock markets in the world, accounts for the bulk of the index’s surge over the last year. The country’s semiconductor-led market has jumped about 90% this year and nearly tripled over the past 12 months. The Korean market now accounts for about 20% of the iShares Emerging Markets ETF (EEM), about double its weighting of a year ago.
South Korea and Taiwan are dominating chip suppliers to the AI build-out and semiconductor super cycle in the U.S. and around the world. That includes South Korea’s Samsung and Taiwan Semiconductor Manufacturing (TSM), both of which have posted big stock gains so far this year.
Samsung Electronics Company is making so much money that to keep its workers on the job, it will distribute about $27 billion to its 78,000 chip employees – an estimated $340,000 average bonus. Samsung agreed to distribute 10.5% of profit as a bonus in stock and a further 1.5% in cash. These annual bonus programs will continue every year for a decade if certain profit targets are met. This deal highlights how important these companies are to their respective countries and the world.
Over the past year, boosted by local retail and global institutional investors, these two tech-savvy nations, not China, have accounted for 75% of emerging market returns, and most of those gains came from just three semiconductor stocks – all big makers of semiconductors – TSMC, Hynix and Samsung, surging to record levels.
Amazingly, these three Asian stocks’ combined profits are on track to top those of Apple (AAPL), Amazon (AMZN) and Alphabet (GOOG) combined.
How profitable are they exactly? Samsung is expected to increase operating profit more than sixfold this year to around $185 billion, more than all the American mega tech companies except Nvidia (NVDA).
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Incredibly, for technical reasons, MSCI still classifies South Korea and Taiwan as emerging markets despite both having per capita incomes over $35,000.
Investors are pushing the big north Asian chipmakers up the ranks of the world’s largest companies by market cap. TSMC is the most widely held stock, owned by 92% of global equity funds. In comparison, Microsoft (MSFT), the most widely owned U.S. stock, is held by 84% of those funds.
The Financial Times put together a great infographic that captures this concentration of power and risk.
While the top U.S. stock (Nvidia) represents 8% of the U.S. index, the top EM stock, Taiwan Semiconductor, now accounts for a record 13% of the MSCI Emerging Market index.
So be mindful that, although adding some emerging market ETFs to your portfolio is good for diversification, they are also increasingly concentrated in a few stocks and a few sectors.
Always look “inside the basket” of the ETF because Asia’s big three chip stocks represent 20% of the EM index. But you need to pick the right ETF since two of these three super stocks do not trade on U.S. markets.
The iShares MSCI Emerging Markets ETF (IEMG) has significantly outperformed its chief rival, the Vanguard FTSE Emerging Markets ETF (VWO), in both 2026 and over the past 12 months. The reason is that the iShares ETF has exposure to the South Korean market, while the Vanguard fund doesn’t.
This is surely a potential bubble, so move cautiously and take some profits from time to time. Better yet, to stay on top of emerging and international markets, join the Cabot Explorer today.
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