Most clients I talk to have not looked at emerging markets in five years. The reasons are real: a decade of underperformance, a strong dollar, China headwinds, and the fact that "EM" as a single label flattens out the largest difference in the global market right now — the gap between AI suppliers and AI consumers. The May 4 WSJ piece on emerging markets "thriving amid war" is the wake-up call.
The chart that matters
Year-to-date through May 1, 2026:
- S&P 500: +5.6%
- MSCI Emerging Markets (EM): +14.1%
- South Korea (KOSPI): +57%
- Taiwan (TAIEX): +34%
- Brazil (Bovespa): +16%
And this is happening despite an active Iran-Israel war, a Brent oil shock from $94 to $114 in three months, and U.S. tariffs that just bumped EU autos from 15% to 25%. EM is supposed to break in those conditions. Instead it's leading.
Why — in three sentences
The U.S. is in a $1T+ AI capex cycle. Almost every chip in that cycle is fabricated in Taiwan or Korea. Our hyperscalers are paying their suppliers more than they're paying themselves — and the suppliers' stock prices are reflecting it.
The structural pieces
| Country | Why it's ripping | How to play |
|---|---|---|
| Taiwan | TSM = sole-source for AI fabrication; fabs sold out into 2027. | TSM ADR (Taiwan Semiconductor) or EWT (iShares Taiwan ETF). |
| South Korea | Samsung memory book sold out; HBM3 / HBM4 demand for AI chips. | EWY (iShares Korea) or direct Samsung ADR (SSNLF). |
| Brazil | Energy + commodities + Lula stepping back from rate cuts. | EWZ (iShares Brazil) or PBR / VALE individual names. |
| India | Domestic-demand resilience; less geopolitical drag. | INDA (iShares India) for index exposure. |
What I'm doing in the model book
Three additions today:
- Taiwan Semiconductor (TSM) — 3% in the 250k and 500k models. Direct exposure to the AI tollbooth.
- EWY (Korea ETF) — 2% basket play. Samsung is 30%+ of the index.
- EEM (broad EM) — reinforcing 2% to 4% across all models. Cheap dollar-denominated exposure.
Combined effect: model-level EM exposure goes from ~2% to ~9%. That's still well below the 13% MSCI ACWI weight. We're still underweight EM — just a lot less underweight than we were last week.
The risks I'm watching
Three things would kill this thesis:
- A Taiwan Strait crisis. Tail risk, not base case. If it happens, TSM and EWY get cut by 30%+ overnight. We size accordingly.
- A genuine AI capex pause — the only thing that breaks the chip-supplier story.
- Dollar resurgence past 1.10 EUR/USD. A strong dollar punishes EM. Today's 1.17 print is supportive.
EM exposure in your model
Capital Wealth's 250k and 500k models now carry: TSM 3% · EWY 2% · EEM 4% · INDA 1%. Watch for a sequenced add of EWZ (Brazil) on commodity confirmation.
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