Emerging-Market Funds Push Back Against AI Chip Concentration

Three semiconductor companies—Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung Electronics Co., and SK Hynix Inc.—now account for more than 30 % of the MSCI Emerging Markets Index, a share comparable to the “Mag 7” in the S&P 500. Their dominance has made the index the most volatile in six years, with SK Hynix’s shares plunging on the day of its U.S. debut and the index falling as much as 2.5 % to a one-month low.

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Fund managers are rotating capital into non-tech sectors and broader geographies. JPMorgan Asset Management and Grantham Mayo Van Otterloo & Co. are increasing exposure to gaming, energy, and even a Vietnamese dairy firm, while seeking opportunities in India and China. Invesco’s William Lam has trimmed Samsung holdings by more than 60 % since the start of the year, redeploying proceeds into Korean firms unrelated to technology. BlackRock is pairing AI-related tech exposure with investments in energy, materials, power infrastructure and utilities to cushion volatility.

Bloomberg

Analysts warn that the current over-weight in AI chip makers may be unsustainable. Warren Chiang of GMO notes that the concentration “is never easy for a portfolio manager” and that “the absolute risk will be there no matter what.” He adds that while large positions in TSMC, Samsung and SK Hynix are unavoidable, diversification can occur at the stock, country and industry levels. Alison Shimada of Allspring Global Investments argues that continued U.S. hyperscaler spending will sustain Asian supply-chain trends, but she acknowledges that “competition, capacity expansion and normal industry dynamics are likely to erode returns over time.”

Bloomberg

• “This type of concentration is never easy for a portfolio manager, it’s always difficult,” — Warren Chiang, portfolio manager, GMO

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• “The point here is to look for opportunity in as many places you can, but the absolute risk will be there no matter what.” — Warren Chiang, GMO

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• “We think it’s important to safeguard clients’ capital from over-concentration,” — William Lam, co-head of Asia and EM equities, Invesco

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• “As long as there is increased development and spending on AI by hyperscalers in the US, the positive trends in the Asian supply chain will continue, according to Alison Shimada, head of total emerging markets equity at Allspring Global Investments.” — Alison Shimada, head of total emerging markets equity, Allspring Global Investments

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• “Chinese technology companies are the survivors of a fierce evolutionary race,” — Oliver Shale, investment specialist, Ruffer

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