aq(n8wrzu3wf4[9pmrgxv2)e_media_dl_1.png Bloomberg

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(Bloomberg) — Investors are rotating beyond AI winners in emerging markets, where just three technology stocks worth $4.4 trillion drive an outsized share of returns.

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Funds including JPMorgan Asset Management and Grantham Mayo Van Otterloo & Co. are turning to bets on the broader economy — such as gaming, energy, and even a Vietnamese milk company. JPMorgan AM is looking at India and China for diversification away from the giant tech companies, one of them in Taiwan and two in South Korea.

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“This type of concentration is never easy for a portfolio manager, it’s always difficult,” said Warren Chiang, portfolio manager for systematic equity at GMO in Berkeley, California. “The point here is to look for opportunity in as many places you can, but the absolute risk will be there no matter what.”

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Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co., and SK Hynix Inc. now make up more than 30% of the MSCI Emerging Markets Index — as much as the exposure of the “Mag 7” in the S&P 500. Overall, technology accounts for 45% of the emerging market index.

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Swings in those three stocks drag or lift the entire emerging market gauge along with them, with investors being roiled by volatility that’s at a six-year high.

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Chipmaking stocks are faltering amid questions over whether cloud providers have overbuilt AI infrastructure. Samsung Electronics’ blowout earnings failed to spark a rally last week, while signs that AI developers are set to flood the market with their own chips deepened concerns that AI investment could outpace demand.

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South Korea’s Kospi has slid 20% from its June record, with waves of selling repeatedly triggering exchange circuit breakers to temporarily halt trading.

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Worries that valuations are getting too frothy — and tech exposures too heavy — led William Lam, co-head of Asia and EM equities at Invesco, to pare back Samsung Electronics in one of the firm’s Asian equity funds by more than 60% since the start of the year. He said he redeployed the proceeds into other Korean companies that are not tied to tech.

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“We think it’s important to safeguard clients’ capital from over-concentration,” Lam said. “History suggests that competition, capacity expansion and normal industry dynamics are likely to erode returns over time.” 

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Despite efforts to diversify, SK Hynix is simultaneously one of the largest underweights in GMO’s $1.9 billion Emerging Markets Equity Strategy fund — and one of its top holdings, according to Chiang. The $1 trillion company maker of memory chips has seen a 13-fold surge in its share price since the start of 2025 — more than fundamentals justify, in Chiang’s view.  

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“You’re not going to get around having a big position in TSMC, Samsung, SK Hynix, but your active position, that could be diversified at the stock level, country level and industry level,” he said.