State Street Investment Management's Mind on the Market argues that emerging markets are entering a supportive macro environment, but investors should recognize that today's EM indices are increasingly dominated by a small group of AI and semiconductor companies.
- The report highlights improving earnings, a weakening U.S. dollar and widening EM-developed market growth differentials as key drivers supporting further upside for emerging-market equities.
- However, benchmark concentration has reached historic levels. TSMC, Samsung and SK Hynix now represent a substantial share of the MSCI Emerging Markets Index, making EM exposure more dependent on the global AI semiconductor supply chain than ever before.
- State Street suggests investors consider complementing traditional passive EM exposure with strategies that access underrepresented sectors and companies, particularly domestically focused businesses and EM small caps that are less tied to the AI trade.
Read the full report for a detailed analysis of emerging markets, benchmark concentration and portfolio implementation.
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