Three companies now outweigh the combined equity markets of India, Brazil, South Africa, Saudi Arabia, Mexico, and the UAE within the emerging markets universe. That single statistic, offered by Alejo Czerwonko, Chief Investment Officer for Emerging Markets at UBS Global Wealth Management1, is among the most striking reframings of emerging markets in recent memory. Those three companies are semiconductor giants based in Taiwan and South Korea. And they have not arrived at this weight by accident.
A Rally Built on Two Engines
After years of underperformance, emerging markets have turned decisively. As Czerwonko notes, "emerging markets have been outperforming the S&P 500 for roughly 18 months." The leadership has been concentrated but powerful, with South Korea and Taiwan rising roughly 70% and 50%, respectively, in US dollar terms in the current year alone.
The instinct might be to reduce the story to artificial intelligence. That instinct would be incomplete. Czerwonko is direct: "emerging markets are not just an AI story." Latin American equities have delivered their own remarkable run, with Brazil, Mexico, Colombia, Peru, and Chile each rising over 70% in US dollar terms over the last 18 months. Commodity prices, improving macroeconomic fundamentals, evolving political dynamics, and attractive entry valuations have collectively powered that result. The asset class, in short, is being driven simultaneously by technology exposure in the north and commodity exposure in the south.
The Index, Reshaped
The performance in North Asia has done more than generate returns. It has restructured the asset class itself. Taiwan and South Korea have now overtaken China as the two largest markets in the MSCI Emerging Markets Index, together accounting for roughly half of its market capitalization. The volatility characteristics of the index have shifted alongside the weights, partly because of the widespread adoption of leveraged ETFs by retail investors in markets like Korea.
Investors are understandably asking whether this concentration has gone too far. Czerwonko's answer is measured but unequivocal. He argues that Taiwan and South Korea "deserve a place in portfolios because of their irreplaceability within the AI value chain." These countries have spent decades building the knowledge, talent, and supply chain infrastructure required to manufacture cutting-edge semiconductors, and global competitors do not come close. The structural case holds even as semiconductor stocks have sold off sharply in recent weeks. A structural supply glut, in Czerwonko's view, is unlikely. The world's largest technology companies remain locked in a winner-takes-all race, while governments are investing in sovereign AI infrastructure to secure technological independence.
That said, discipline is warranted. Czerwonko reaches for Warren Buffett's well-worn formulation: "Be greedy when others are fearful and fearful when others are greedy." The fundamentals in North Asia remain intact, but extraordinary gains always warrant caution. The conclusion is measured: this is not the moment to abandon the leaders, "but it may be time to avoid chasing them indiscriminately."
Valuation, Reconsidered
Counterintuitively, despite the strength of the rally, emerging market valuations have actually compressed. The forward price-to-earnings ratio of the MSCI Emerging Markets Index has declined to roughly 10 times, down from approximately 13 times at the start of the year. The macro backdrop supports that picture: manufacturing activity is healthy, commodity prices remain elevated, and earnings growth is solid.
Against that backdrop, Czerwonko's favored positioning spans mainland China, Korea, and India, which UBS recently upgraded to Attractive. Latin America remains an important source of portfolio diversification through its exposure to physical assets and non-technology sectors.
UBS maintains conviction in what it calls Transformational Innovation Opportunities, or TRIOs: Artificial intelligence, Power and resources, and Longevity. Emerging markets sit at the intersection of all three, offering both the technologies shaping the future and many of the resources required to power them.
Five Key Takeaways for Advisors and Investors
- Emerging markets are no longer a single narrative. Technology concentration in North Asia and commodity-driven strength in Latin America are distinct return drivers that deserve distinct portfolio treatment.
- Taiwan and South Korea are structurally irreplaceable in the AI value chain. Short-term volatility does not change the decades-long accumulation of semiconductor know-how that underpins their position.
- Chasing North Asia momentum at current levels carries real risk. The leaders deserve portfolio space; indiscriminate additions after 50-70% gains do not.
- Valuation compression is a meaningful signal. A forward P/E of roughly 10 times on an index that has significantly outperformed suggests earnings have kept pace with prices — that is unusual and worth noting.
- Geographic balance is a risk management tool, not a consolation prize. Mainland China, India, and Latin America each offer return streams and risk characteristics meaningfully different from the semiconductor-heavy North Asian bloc.
Footnote:
1 Czerwonko, Alejo. "Technology, Commodities, and the Changing Face of Emerging Markets." UBS Global Wealth Management / LinkedIn, 23 July 2026, www.linkedin.com/pulse/technology-commodities-changing-face-emerging-markets-alejo-at8be/.
