Emerging market stocks hit record high as Asian chipmakers surge

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Emerging market stocks have recovered all of their losses from the early stages of the Iran war to hit an all-time high, as a dizzying rally for a handful of Asian chipmaking giants underscores the tech sector’s growing sway over the asset class.

The benchmark MSCI Emerging Market index — a gauge of large companies across 24 developing economies — has climbed more than 15 per cent so far in April to surpass its previous peak in February, outpacing the 10 per cent gain in the S&P 500 index of US blue-chip stocks over the same period.

Almost half of the MSCI EM’s gains this month have come from just three chipmakers that have become central to the AI boom and now make up nearly a quarter of the benchmark: Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung Electronics and SK Hynix.

Their dominance has left some investors concerned that the EM index — often used to diversify risk away from blue-chip stocks in advanced economies — has become a derivative of the AI mania that has already swept Wall Street, rather than providing broad exposure to companies across emerging economies.

“The AI story has run so wild in Korea and Taiwan,” said Song Zhe, senior investment specialist at BNP Paribas Asset Management. “We still love this market but people should think about diversification in this AI rally.”

TSMC — which recently overtook state oil giant Saudi Aramco as the index’s biggest company, at a $1.8tn valuation — is up more than 23 per cent in April, while Samsung Electronics is up 35 per cent and SK Hynix has soared more than 60 per cent.

Taiwan’s stock market is on track for its best month in decades, at about 25 per cent in US dollar terms, while South Korea’s Kospi has gained 24 per cent, the most in a month since the Asian financial crisis in 1998. The Kospi closed at a record high on Tuesday.

Both markets tumbled in the early days of the Iran war, as investors rushed to liquidate some of their best-performing positions of early 2026. But the indices have roared back as investors have returned to those trades, even as the global economy braces for a collapse in energy supplies to rival the devastating oil shocks of the 1970s.

Timothy Fung, head of equity strategy for Asia at JPMorgan Private Bank, said the MSCI EM’s startling concentration in South Korea and Taiwan, which together comprise nearly 44 per cent of the index, was a result of these companies’ crucial position in the supply chains of US hyperscalers — the Big Tech companies spending hundreds of billions of dollars on AI infrastructure.

However, he added that their dominance meant EM assets were now more closely correlated with Wall Street.

“All of these are cyclical companies and industries and they have good days and bad days,” he said.

The weighting of Taiwan and South Korea has also been increased by MSCI’s decision to cap the EM index’s exposure to China at 20 per cent of the free float of Chinese companies, a level set in 2019 because the mainland market is not fully open to foreign investors.

Chinese stocks have advanced much less than other Asian markets, with the CSI 300 index up just under 7 per cent in April.

Stocks have also been helped by a weaker dollar, which boosts earnings for emerging market exporters. The US currency surged in the early stages of the conflict but has since given up the bulk of its gains.

“The US dollar, which largely moves in opposite directions to emerging markets . . . is likely to have peaked,” said Varun Laijawalla, emerging markets equity portfolio manager at Ninety One.

Emerging market stocks were also benefiting from a “structurally better earnings picture” and relatively cheap valuations compared with the US, Laijawalla added.

Tech stocks had led the rally, with a sub-index gaining around 50 per cent so far this year, though energy, industrial and utilities shares had also notched up double-digit returns, Laijawalla said. “When considering the breadth of returns, seven out of 11 sectors were in positive territory, meaning the rally is more than just tech,” he said.

The overall rally in EM stocks masks losses in some markets vulnerable to the fallout from the Iran war. In dollar terms, the stock markets of many oil-importing countries are still deep in the red compared with pre-war levels, with bourses in Indonesia and the Philippines down more than 16 per cent since the end of February, South Africa’s main index down 13 per cent and India’s Sensex off 9 per cent.