Daily Macro

Macro Notes - Emerging Markets are Winning Unevenly

May 05, 2026

Saakshi Mehta

Vice President, ETF & Alternatives Strategy

Emerging markets (EMs) are up +14% year-to-date, but the leadership is narrow. The gains can be attributed to three AI chipmakers, namely TSMC, Samsung and SK Hynix, that make up to 25% of the index.

Chart 1 highlights this concentration. Market-cap weighted index returns have meaningfully diverged from the equal weighted index returns over the last month. This kind of concentration can be favorable when the theme is working, but it also raises the bar for diversification benefits.

Chart 2 reinforces the same point at the country level. South Korea and Taiwan have been standout contributors, largely because their equity benchmarks are heavily geared to the semiconductor supply chain and AI hardware demand.

Despite the concentration risk, the fundamentals are still intact. EMs are widely expected to deliver stronger earnings growth over the next year, while trading at a valuation discount to the developed markets.

We continue to be long ZEM (BMO MSCI Emerging Markets Index ETF) in our Q2 Macro Regime portfolio.

Chart 1: EM Equal Weighted Index is Falling Behind

Note: Rebased since start of the year
Data as of May 4^th, 2026
Source: MSCI, Bloomberg, BMO GAM

Chart 2: Year-to-Date Returns for Emerging Market Indices

Data as of May 4^th, 2026
Source: MSCI, Bloomberg, BMO GAM

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