Emerging markets are a time-honoured means for investors in developed economies to diversify their risk. But what if emerging countries are becoming reflections of the tech mania gripping Wall Street? There are certainly signs that similar forces are driving markets in disparate corners of the globe.
MSCI’s emerging markets index this week hit a fresh record. About half of its 17 per cent rally since January has been driven by South Korea’s Samsung Electronics and SK Hynix, up 122 per cent and 146 per cent respectively, and Taiwanese chipmaking giant TSMC with a relatively modest 48 per cent rise. Samsung’s market capitalisation passed $1tn; TSMC’s is almost twice that.
It never takes much though, to make emerging markets lose their investment appeal. Their characteristic volatility can quickly get jittery investors fretting about the sheer range of countries included — does it make sense to lump Brazil in with Poland? — while also griping about their concentration risk, such as China’s heavy weighting.