AnswersPublished16 sources
How TSMC, Samsung and SK Hynix Came to Dominate Emerging-Market Returns
TSMC, Samsung Electronics and SK Hynix make up 26.7% of Morningstar’s emerging markets benchmark and generated about 57% of its 30.3% one year return. Semiconductors and technology hardware contributed more to the MSCI Emerging Markets Index’s first half 2026 return than the index gained overall, while information t...
Published byEdited with GPT-5.6 LunaImages generated with GPT Image 1.5
Research answer
Key takeaways
- TSMC, Samsung Electronics and SK Hynix make up 26.7% of Morningstar’s emerging markets benchmark and generated about 57% of its 30.3% one year return.
- Semiconductors and technology hardware contributed more to the MSCI Emerging Markets Index’s first half 2026 return than the index gained overall, while information technology grew to nearly half of the index.
- Active managers are responding by limiting exposure to the largest chip stocks and looking for less correlated opportunities in areas such as Chinese financials, ASEAN companies and India—but that can create significa...
AI Prompt
openai.comCreate a landscape editorial hero image for this Studio Global article: How have AI-linked semiconductor stocks—particularly Taiwan Semiconductor Manufacturing, Samsung Electronics, and SK Hynix—come to dominate. Article summary: AI capital spending and demand for advanced logic chips and high-bandwidth memory have lifted TSMC, Samsung Electronics, and SK Hynix so sharply that a nominally diversified emerging-markets allocation has increasingly b. Topic tags: general, news, general web. Style: premium digital editorial illustration, source-backed research mood, clean composition, high detail, modern web publication hero. Use reference image context only for broad subject, composition, and topical grounding; do not copy the exact image. Avoid: logos, brand marks, copyrighted characters, real person likenesses, fake screenshots, UI text, readable text, watermarks, charts with fake numbers,
The emerging-markets rally has been reshaped by the artificial-intelligence infrastructure boom. Taiwan Semiconductor Manufacturing (TSMC), Samsung Electronics and SK Hynix have risen so strongly that a conventional emerging-markets allocation increasingly resembles a concentrated bet on AI hardware, Taiwan and South Korea rather than a broad collection of developing economies. 17
That concentration has powered returns, but it has also changed the risk investors receive when they buy an emerging-markets index fund.
Three stocks now drive a disproportionate share of returns
TSMC, Samsung and SK Hynix represent 26.7% of Morningstar’s Emerging Markets Target Market Exposure Index. Over the preceding year, the three companies produced roughly 57% of the benchmark’s 30.3% return. 17
The pattern is visible beyond the Morningstar benchmark. In the first half of 2026, semiconductors and technology hardware contributed more to the MSCI Emerging Markets Index’s return than the index delivered overall, indicating that gains in the chip complex offset weakness elsewhere. Information technology had also grown to nearly half of the index. 5
The companies are benefiting from different but connected parts of the AI supply chain:
- TSMC is a leading source of advanced logic-chip manufacturing capacity.
- Samsung Electronics combines a major semiconductor business with a broader electronics franchise.
- SK Hynix is strongly associated with memory, including the high-bandwidth memory needed for AI systems.
The result is not simply that technology stocks have performed well. The market capitalization of a small group of companies has grown large enough to influence the country, sector and overall return profile of the benchmark.
The geographic concentration is just as important
Because the three companies are based in Taiwan and South Korea, their rise has increased the effective geographic exposure of emerging-markets portfolios. A benchmark investor may own Taiwan primarily through TSMC and South Korea primarily through Samsung and SK Hynix, rather than receiving evenly distributed exposure to the region’s banks, consumers, industrial companies and smaller markets.
One analysis estimates that Taiwan represents roughly one-quarter of the MSCI Emerging Markets Index, South Korea close to one-fifth, China slightly less than one-quarter and India around 12%. Together, those four countries account for roughly 79% of the index. 13
That does not mean exposure to China or India has disappeared. It means that the headline label “emerging markets” can conceal a relatively narrow underlying portfolio: four large Asian markets, with a significant portion of the performance linked to a single technology supply chain.
The same three companies also account for nearly one-third of the MSCI Asia Pacific ex-Japan Index, according to Reuters. 1
Why index concentration worries fund managers
Market-cap-weighted indexes naturally give larger positions to companies whose share prices and market values have risen. That process can be useful for representing the market as it exists, but it also means investors can become more exposed to a winning theme after it has already become dominant.
For an emerging-markets tracker, the practical exposure may therefore be closer to:
- advanced semiconductor manufacturing in Taiwan;
- memory demand and pricing in South Korea;
- the global capital-spending cycle for AI infrastructure; and
- the valuation of a handful of very large technology companies.
That is materially different from a portfolio designed to spread risk across domestic finance, consumer demand, commodities, infrastructure, manufacturing and smaller emerging economies.
Active managers face a related problem. Investment mandates often limit the weight that a fund can place in a single stock or sector. Reuters reports that the combined weighting of TSMC, Samsung and SK Hynix has moved above levels many active portfolio rules consider acceptable. 1
This creates a difficult choice: underweight the dominant stocks and risk falling behind the benchmark during a further chip rally, or match the index and accept a concentration that may conflict with the fund’s diversification rules.
The performance cost of that choice can be substantial. Coronation’s global emerging-markets fund returned 13.9% in the second quarter of 2026 but lagged its MSCI Emerging Markets benchmark by 10.1 percentage points as the concentrated AI-supply-chain rally favored index heavyweights. 4
How current concentration compares with earlier episodes
Morningstar says the current concentration exceeds levels seen in previous episodes that were followed by large selloffs. 7
The available evidence does not provide a consistent set of historical percentages or identify every comparison period, so it does not support a precise numerical claim about how much more concentrated the market is than during any particular earlier episode. The defensible conclusion is narrower: concentration is high enough that several analysts are treating it as a central portfolio risk, not merely a side effect of strong performance.
That distinction matters. A concentrated index can continue to outperform while its leading companies deliver strong earnings. But the same structure can amplify losses if expectations change across the group at the same time.
Why the AI case is credible—but not automatically durable
There is a genuine fundamental basis for the rally. AI infrastructure requires advanced logic chips and specialized memory, and Taiwan and South Korea house much of the relevant production capacity. Semiconductor earnings and AI-related capital expenditure therefore provide more than a purely speculative explanation for the companies’ gains. 4
5
However, strong demand today does not guarantee that current growth rates or valuations will persist. Semiconductor markets are cyclical. Customers can reduce orders, inventories can build, memory prices can weaken, and capital spending can slow. Investors may also reassess the returns that businesses expect to earn from AI infrastructure.
With three companies representing 26.7% of a key emerging-markets benchmark, a change in the AI investment outlook could affect the index even if banks, consumer companies and other emerging-market businesses remain fundamentally sound. 17
The key risk is therefore not that the AI opportunity is imaginary. It is that a real long-term theme may already be reflected in a concentrated set of companies and markets, leaving index investors unusually sensitive to one cycle and one valuation regime.
How active managers are seeking diversification
Some managers are responding by reducing or limiting their exposure to the largest semiconductor holdings and searching for opportunities that are less correlated with the AI hardware cycle. Reports on the market describe interest in Chinese financials, ASEAN businesses and Indian companies as possible sources of broader emerging-markets exposure. 1
7
Those areas can offer different forms of exposure, including domestic credit, consumption, infrastructure and regional manufacturing. But diversification does not make an investment automatically cheap or attractive; it simply changes the risks being taken. Active managers must also accept the possibility of underperforming if the concentrated chip rally continues.
What investors should check before buying an EM fund
The headline label of an exchange-traded fund or mutual fund is not enough to establish how diversified it is. Investors should examine:
- Top holdings: How much is allocated to TSMC, Samsung, SK Hynix and other AI-related companies?
- Country weights: How much exposure is actually tied to Taiwan and South Korea, and how much remains for China, India, ASEAN and Latin America?
- Sector weights: Is the fund diversified across finance, consumer businesses, industrials and materials, or is technology close to half the portfolio?
- Benchmark rules: Does the fund track a market-cap-weighted index that automatically increases exposure to recent winners?
- Active constraints: If a fund underweights the largest chip companies, can its portfolio withstand a period of further benchmark outperformance?
The central takeaway is balanced. AI has created genuine earnings power and strategic importance for TSMC, Samsung and SK Hynix, and that strength explains much of their influence over emerging-market returns. But the same success has made broad emerging-markets indexes unusually dependent on three companies, two countries and one technology cycle. Investors seeking true diversification should inspect the underlying weights rather than assume that an emerging-markets label provides it automatically.
Studio Global AI
Continue your research
This page includes a source-backed answer you can continue inside Studio Global.
People also ask
What is the short answer to "How TSMC, Samsung and SK Hynix Came to Dominate Emerging-Market Returns"?
TSMC, Samsung Electronics and SK Hynix make up 26.7% of Morningstar’s emerging markets benchmark and generated about 57% of its 30.3% one year return.
What are the key points to validate first?
TSMC, Samsung Electronics and SK Hynix make up 26.7% of Morningstar’s emerging markets benchmark and generated about 57% of its 30.3% one year return. Semiconductors and technology hardware contributed more to the MSCI Emerging Markets Index’s first half 2026 return than the index gained overall, while information technology grew to nearly half of the index.
What should I do next in practice?
Active managers are responding by limiting exposure to the largest chip stocks and looking for less correlated opportunities in areas such as Chinese financials, ASEAN companies and India—but that can create significa...