Rise of the Heavyweights

Emerging-market equities offer a broader and more attractively valued opportunity set than increasingly concentrated US markets, while retaining meaningful diversification benefits.

• The ten largest US stocks account for nearly 40% of the MSCI USA Index, above dot-com-era peaks, while TSMC, Samsung Electronics, and SK Hynix represent 30% of the MSCI Emerging Markets Index.
• Emerging Markets information technology trades at half the forward P/E of its US counterpart; its forward multiple is essentially unchanged from fifteen years ago, whereas the US technology multiple has expanded substantially.
• Bloomberg consensus expects the emerging-market “Big Three” to deliver 298% float-weighted year-over-year earnings growth in 2026, supported by AI demand and Causeway’s estimate of $750bn in hyperscaler capex in 2026 and $1.1tn in 2027.
• Earnings growth extends beyond semiconductors: emerging markets excluding South Korea and Taiwan posted 10.5% year-over-year EPS growth in Q1 2026, while full-index earnings are expected to grow 54% in 2026 versus 27% for the S&P 500.
• Diversification remains available despite concentration, with the MSCI Emerging Markets Index’s three-year correlation with the MSCI USA Index at 0.65, below the 0.72 thirty-year average; Causeway also reports double-digit EPS estimate upgrades across most portfolio sectors over the past three months.

Takeaway: Investors should look beyond concentrated index leaders because emerging markets combine lower technology valuations, broadening earnings momentum, and stronger-than-historical diversification, although the forecasts and company-level opportunities remain subject to valuation, geopolitical, cyclical, and execution risks.