Emerging Markets Face an AI-Fueled Rollercoaster

The concentration of capital in a handful of hardware-focused companies has fundamentally altered the character of emerging market funds. Where these regions once served as a source of diversification, they now mirror the top-heavy structure of the U.S. market. Nine firms, including Alibaba and Tencent alongside major chipmakers, now represent over 40% of the MSCI EM index. This dominance has invited intense scrutiny as recent price swings in Korea have occasionally outpaced those seen in the cryptocurrency market.

Institutional investors are now questioning whether the potential for earnings growth outweighs the risks of such intense turbulence. JPMorgan data indicates that international investors withdrew over $100 billion from South Korean markets and $44 billion from Taiwan in the first half of the year, a retreat driven by both profit-taking and regulatory constraints on fund exposure. While some managers like UBP’s Dimitri Kallianiotis advise against panic, others are adjusting their strategies to prioritize stability. The shift underscores a broader realization: emerging markets are no longer on the periphery of the AI trade, but are instead positioned directly in its volatile center.