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EM ETFs Shift: From China to AI Chips
28 Jun
Summary
- Emerging market ETF assets favor South Korea and Taiwan over China.
- AI supply chain is increasingly driving emerging market investments.
- Index differences create varied semiconductor exposure in EM funds.
Exchange-traded funds focused on emerging markets are undergoing a notable transformation, with South Korea and Taiwan now attracting more investor assets than China-based funds. This strategic pivot directs the focus of emerging market ETFs towards two crucial global semiconductor hubs.
The landscape of emerging markets was once dominated by China, commodities, and consumer economies. However, the burgeoning AI supply chain has redirected investment flows, drawing emerging market investors into the same global chip cycle that powers US technology.
South Korea, home to giants like Samsung and SK Hynix, and Taiwan, with Taiwan Semiconductor Manufacturing, now significantly influence broad emerging market ETF allocations. This means that investing in emerging markets increasingly means gaining exposure to AI hardware.
Recent market volatility, particularly a chip sell-off in early March, highlighted the interconnectedness of these markets. Pressure on semiconductor stocks now extends beyond US ETFs to country and broad emerging market funds that include South Korean and Taiwanese equities.
Furthermore, investor diversification strategies must now account for differing index methodologies. For instance, the iShares MSCI Emerging Markets ETF includes South Korea, while the Vanguard FTSE Emerging Markets ETF classifies it as developed, leading to varying levels of semiconductor exposure between the two funds.
