Technology’s Outsized Role in Passive Allocations to Emerging Markets Equities

Passive exposure to emerging-market equities is far less diversified than the broad asset class suggests because technology stocks dominate the benchmark.

• TSMC represents 15.5% of the MSCI Emerging Markets Index, while its 10 largest holdings account for 38.1%.
• Six of the 10 largest holdings—TSMC, Samsung Electronics, SK Hynix, Mediatek, Delta Electronics, and Hon Hai Precision Industry—are technology companies and together represent 32.1% of the index.
• The index’s technology-sector weight is 40.8%, excluding technology-related companies classified elsewhere, such as Alibaba Group and Tencent.
• Concentration reflects Taiwan’s technological dominance, China’s declining index weight after recent underperformance, and the rise of mega-cap semiconductor and internet companies tied partly to data-center and AI infrastructure spending.
• Lazard sees attractive relative valuations, a positive outlook for many emerging economies, and strong earnings growth as support for continued EM equity momentum.

Takeaway: Investors using passive EM funds should recognize their concentrated exposure to a few technology stocks; Lazard argues that active, bottom-up research can broaden exposure to under-represented countries and companies while avoiding large single-stock or sector bets.