Emerging market stock strategies are poised for their best year since 2016, driven by the AI boom. Samsung, Taiwan Semiconductor, Alibaba, and Tencent are leading gains in key indexes. Taiwan Semiconductor’s weight in the MSCI EM index has doubled in two years, highlighting concentration risk.

Key AI-related stocks in Korea, Taiwan, and China are propelling emerging market stock funds to their best year in a decade. Samsung Electronics and Taiwan Semiconductor are vital to the AI ecosystem, with deals with Nvidia and OpenAI boosting their valuations. A shift away from US equities and a weaker US dollar are also bolstering emerging markets.

Xtrackers MSCI Emerging Markets ETF is up nearly 30% in GBP in 2025, tracking the MSCI EM index. Morningstar Category global emerging markets equity has increased 22% year to date. The chart shows MSCI Emerging Markets outperforming MSCI World over the past 10 years, although returns in GBP are lower due to US dollar appreciation.

Tech giants like Taiwan’s TSMC, Tencent, and Alibaba are driving gains in the Xtrackers MSCI Emerging Markets ETF. TSMC’s custom chips for OpenAI, along with Tencent and Alibaba’s large language models, are key contributors. Samsung Electronics and SK Hynix from South Korea are also major players in the ETF.

South Korean and Taiwanese stocks are dominating the EM index gains, with SK Hynix and Samsung Electronics posting significant growth. Korea’s SK Hynix has surged 217% year to date, while Taiwan’s Delta Electronics has outperformed to become a major contributor to index growth.

The concentration risk in emerging market funds is growing, mirroring trends in the US stock market. TSMC is now the largest weighting in the EM index, with its stock soaring 200% in five years. The top five stocks in the EM index represent nearly 27% of the total index, highlighting the risk of overreliance on key players.

China’s stock market has overcome tariff turmoil, with investors bullish on Chinese stocks being rewarded in 2025. The agreement of a tariff framework between the US and China has restored investor confidence in emerging markets. AI themes have helped investors navigate tariff uncertainties and reallocate capital to other regions.

Morningstar’s Global Investment Outlook for 2026 highlights the success of EM in 2025, driven by a shift away from US equities. China, Korea, and Taiwan have been key drivers of EM index performance. China remains an index heavyweight, but investors seem to prefer broader emerging market exposure over specific country funds.

Read more at Morningstar: AI Stocks Power Best Emerging Market ETF Returns Since 2016