Emerging markets are more interconnected than ever, mainly relying on one significant technology: artificial intelligence. The MSCI Emerging Markets index, comprising large and mid-cap stocks from 24 countries, increasingly depends on a single player. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor foundry, now constitutes 10.2% of the index, reaching an unprecedented level of concentration.
This year, TSMC accounted for roughly 40% of the index’s returns, greatly exceeding Nvidia’s 22% influence on the S&P 500 last year. Research from 2023, covering 384 EM funds, shows that two-thirds consider TSMC their top investment, breaking prior records. TSMC supplies cutting-edge chips for leading companies, with 92% of U.S. AI chip imports sourced from this Taiwanese corporation, boosting its stock price to triple since 2023.
Concerns regarding dependence on TSMC are rising, particularly given that the success of major Technology firms’ AI projects is heavily tied to it. Influential figures, including former Intel CEO Pat Gelsinger, have highlighted the dangers of over-reliance on Taiwan for semiconductors. The situation poses challenges for emerging markets, as their traditional function as a buffer against U.S. stocks is threatened by TSMC’s performance and its strong connections to the U.S. chip industry. This relationship raises concerns about the repercussions of any significant disruptions in the Technology sector.
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