Emerging markets get a hard lesson in tech hype

The article discusses the impact of the AI boom on emerging markets, particularly focusing on South Korean and Taiwanese tech stocks. While companies like TSMC and Samsung have seen significant gains, the market has also experienced extreme volatility since late June, resulting in steep declines in stock values and increased investor apprehension. This volatility has surpassed levels seen during the COVID-19 pandemic and has led to concerns about the concentration of the EM index, with just a few companies dominating. Fund managers are cautious, advising against panic selling but acknowledging the risk associated with the current market conditions.

Exclusive news, data and analytics for financial market professionalsLearn more aboutRefinitiv

Asia markets tumble as tech rout deepens

A currency dealer works in front of an electronic board displaying the exchange rate between the U.S. dollar and South Korean won, the Korea Composite Stock Price Index (KOSPI) and South Korean won and the Korea Securities Dealers Automated Quotations (KOSDAQ) at the dealing room of a bank in Seoul, South Korea, June 8, 2026. ... Purchase Licensing Rights, opens new tabRead more

Summary
Companies
AI boom thrusts emerging market stocks back into the limelight
TSMC, Samsung and SK Hynix have all soared in value
Recent volatility has been too much to handle for some investors

LONDON, Aug 6 (Reuters) - A few years ago, when almost every bank research note seemed to focus on soaring U.S. tech stocks, veteran emerging market fund manager Carlos von Hardenberg was struggling to get investors interested in anything else. Not any more.

Now the AI boom has lit a rocket under the South Korean and Taiwanese firms that dominate ‌high-tech memory chip making and, as of this year, the global EM stock indexes (.MSCIEF), opens new tab that have emerged from Wall Street's shadow.

Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here.

Advertisement · Scroll to continue

"Investors would say they were only interested in the U.S. and Magnificent Seven, and this is all you need because they were doing so well," said Hardenberg, who co-founded MCP Emerging Markets in 2018 alongside pioneering EM bull Mark Mobius.

"Now this year, everything turned the other way around."

But riding the AI boom has come at a cost. Since late June extreme volatility has taken hold, almost as if investors suddenly got altitude sickness.

South Korea's KOSPI index (.KS11), opens new tab, which had doubled in value on the back of even bigger gains for Samsung Electronics (005930.KS), opens new tab and SK Hynix (000660.KS), opens new tab, ripped back 40% in just six weeks on a mix of concerns and curbs. Taiwan's ⁠TSMC (2330.TW), opens new tab, by far the biggest company in the EM stock universe, fell almost 14%.

Advertisement · Scroll to continue

It sent volatility in South Korea (.KSVKOSPI), opens new tab skyrocketing and even for MSCI's $1.8 trillion EM benchmark, which contains more than 1,175 companies from 24 different countries, it surpassed the peaks of the COVID pandemic. (.VXEEM), opens new tab

"The clients that we speak to, the institutional clients, are struggling with the level of volatility in Korea at the moment," said William Bratton, head of cash equity research for APAC at BNP Paribas.

"To the point that they think that any sort of fundamental positive earnings story that may exist — and we believe does exist — is not worth pursuing at this point."

Volatility surge

Huge swings in likes of KOSPI have driven major volatility in EM stocks index

Volatility has hit higher levels in recent weeks than at peak of Covid pandemic

CBOE

EM stocks volatility gauge

01020304050

Euro crisis

Covid pandemic

AI-related volatility

Chart explorer. Use arrow keys ↑ ↓ ← → to navigate.

Reuters | Marc Jones @marcjonesrtrs

Source: LSEG Datastream

CAREFUL WHAT YOU WISH FOR

Korea and Taiwan are only still classed as EMs by MSCI for the technical reason that it can be difficult for international investors to trade their currencies.

For some the risk of the recent mayhem is that all those old longings for some Mag 7-style excitement in EM become a classic case of "careful what you wish for".

Just nine companies — mostly the big Taiwanese and Korean tech firms, plus Alibaba and Tencent in China — now account for more than 40% of MSCI EM, opens new tab, making it even more top heavy than the U.S. index, opens new tab.

The Korean market's swings have ‌even been ⁠larger than cryptocurrency bitcoin's this year (.BVIV), opens new tab, while the recent rout saw the most dramatic drop in the MSCI EM index's "liquidity factor" ever — a result, the firm's chief research officer says, of investors moving away from the shares that had been surging.

"What we're seeing is that emerging markets, which people used to look to as a source of diversification, because of the emergence and importance of these extremely large AI-related, particularly AI hardware-related companies, are not really a source of diversification anymore," MSCI's research head Ashley Lester said.

Advertisement · Scroll to continue

"They're right in the centre of the AI boom."

Concentration levels

AI boom has seen South Korea and Taiwan overtake China in MSCI EM index weighting

Top 10 stocks now account for 30% of MSCI EM index

05101520253035%9%14%13%39%

INDIA

11%

TAIWAN

27%

KOREA

24%

CHINA

19%

Chart explorer. Use arrow keys ↑ ↓ ← → to navigate.

Reuters | Marc Jones @marcjonesrtrs

Source: MSCI

RIDE THE VOLATILITY

Ji Young Park, a portfolio manager at Europe's biggest fund manager Amundi, said she had ⁠started scaling back some of her exposure before the turbulence kicked off, but that the selloff had still been costly.

"I think in the last month there have been six or seven circuit breakers (on the Korean stock market), so it tells you just how volatile it has been," Park said.

While giant lurches aren't necessarily a limiting factor for her fund, they do cause caution.

"That's not the kind of investor that I am because I'm trying to buy ⁠a stock over five years," Park added. "And I quite like to sleep at night."

UBP technology portfolio manager, Dimitri Kallianiotis, said some of his private bank clients have been spooked too, although his advice has been not to panic.

LSEG data shows that the too-big-too-fast factor meant international investors pulled money out of Asia-ex China share markets faster than during any six months going back to at least 2010 in ⁠the first half of the year.

South Korea and Taiwan bore the brunt, shedding over $100 billion and $44 billion respectively, according to JPMorgan, as rules designed to prevent funds holding too much of any one stock saw investors cash in some of the respective 500% and 1,100% 12-month gains on Samsung and SK Hynix.

"Ride the volatility and try to avoid the overhyped names," UBP's Kallianiotis said. "If you are not invested in the tempest days, you won't be there for the rebound."

AI boom has boosted EM index's appeal

EM stocks have enjoyed rare run of outperformance over last 2 years

AI chip-heavy markets like South Korea and Taiwan have led the EM rally

MSCI

All-country world

MSCI

Emerging Markets

MSCI

China $

S&P

500

Nasdaq

MSCI

Europe

−100102030405060%34%36%44%33%54%36%

Chart explorer. Use arrow keys ↑ ↓ ← → to navigate.

Reuters | Marc Jones @marcjonesrtrs

Source: LSEG Datastream

Additional reporting by Ankur Banerjee in Singapore; editing by Dhara Ranasinghe and Aurora Ellis

Our Standards: The Thomson Reuters Trust Principles., opens new tab

X
Facebook
Linkedin
Email
Link

Purchase Licensing Rights

Marc Jones

Thomson Reuters

Marc Jones is a senior global markets correspondent based in London with a focus on economics, central banks, policymakers, and crises. Previously he worked in Frankfurt covering the European Central Bank at the height of the euro zone turmoil, the UK companies desk during the initial phase of global financial crash. He started his Reuters career on the sports desk covering everything from soccer to cycling.

Business

Bain Capital-backed Dhoot Transmission bets on India EV shift to drive growth

category · August 6, 2026 · 2:27 AM EDT · 14 mins ago

IPO-bound Dhoot Transmission expects India's shift to electric vehicles to drive growth as the auto components maker expands its product portfolio and ties with automakers, a ‌top executive said.