Retro rally from e-merging markets

TL;DR

E-merging Rally: Ruchir Sharma argues emerging markets are rallying due to AI-driven gains in South Korea and Taiwan, termed a "retro rally" from old tech standouts.[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW)[[2]](https://www.ft.com/content/3f3324fa-c0b6-479e-9ed4-10b72f0a75f8?syn-25a6b1a6=1)
TSMC Dominance: TSMC accounts for a record 13% of the MSCI emerging markets index, exceeding Nvidia's 8% in the US index and all Indian stocks combined.[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW)[[3]](https://www.ft.com/content/3f3324fa-c0b6-479e-9ed4-10b72f0a75f8)
Correction Risk: Semiconductors have outperformed the MSCI EM index by over 180% in two years, putting them in a "danger zone" for a sharp pullback per historical study.[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW)

The story at a glance

Ruchir Sharma, chair of Rockefeller International, examines a resurgence in emerging market stocks led by South Korea and Taiwan's semiconductor firms amid the global AI boom. These countries, classified as emerging despite developed status, are driving what he calls a "retro rally" from 1990s-style tech leaders like TSMC and Samsung. The piece is reported now as AI demand tightens chip supply, boosting these markets while China lags. Emerging markets indices have become highly concentrated in these names.[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW)[[2]](https://www.ft.com/content/3f3324fa-c0b6-479e-9ed4-10b72f0a75f8?syn-25a6b1a6=1)

Key points

Emerging markets now more concentrated than the US, with top five stocks holding a larger index share.
TSMC (Taiwan Semiconductor Manufacturing Company) weighs 13% in MSCI EM index, a record high and more than Nvidia's 8% in S&P 500 or all India combined.[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW)
South Korea and Taiwan lead AI gains due to tight chip supply and demand from hardware like memory and foundries.
China, expected as AI's second-biggest winner after US, sees weak stock performance from Alibaba and Tencent as they struggle to monetize AI.
Semiconductor sector outperformed MSCI EM by over 180% in past two years, topping a 150% threshold linked to probable corrections in a landmark study.
Rally echoes 1990s "e-merging" era when Korea and Taiwan dominated tech before dotcom bust.

Details and context

Sharma notes South Korea and Taiwan are "arguably sprung to the fore" as AI beneficiaries, supplying critical components amid supply constraints.[[3]](https://www.ft.com/content/3f3324fa-c0b6-479e-9ed4-10b72f0a75f8) Though advanced economies by income, MSCI still labels them emerging, amplifying their index weight—TSMC alone rivals entire nations like India.

China's AI lag stems from unproven monetization, contrasting hardware prowess in Taiwan (TSMC foundry) and Korea (Samsung memory chips). This shifts EM performance from broad growth to narrow tech concentration.

Historical parallel: 1990s saw these nations fuel an "e-merging" boom, but overperformance preceded reversals. Current setup risks similar dynamics if AI hype cools.[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW)

Key quotes

"For now South Korea and Taiwan are the biggest beneficiaries of the AI wave."[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW) — Ruchir Sharma, FT

"That puts them firmly in the danger zone, if history is any guide."[[1]](https://www.linkedin.com/posts/gs4413_ruchir-sharma-today-by-some-measures-activity-7451859944028430336-0KPW) — Ruchir Sharma, on semiconductor outperformance

Why it matters

AI hardware demand is reshaping emerging market leadership toward Northeast Asia's chip powerhouses, challenging traditional views of EM diversification. Investors face heightened volatility from single-stock dominance like TSMC at 13%, while China's stumble highlights uneven AI benefits across regions. Watch for AI demand sustainability and potential index reclassifications of Korea/Taiwan, which could trigger sharp adjustments if the rally falters.