Using the Lipper Leaders scoring system to analyse the best-performing funds in the IA Global Emerging Markets sector.
Global emerging markets funds (GEMs) are back in fashion. The sector has gone from suffering redemptions to taking more than £13bn over the 12 months to May 2026.
Since 2009’s equity rebound from the global financial crisis, emerging markets have consistently underperformed global, as key developed markets—particularly the US—led returns. Between 2009 and 2025, annualised returns for the IA Global Emerging Markets sector were 9.56%, as opposed to North America’s 14.12%. Indeed, last year was the first time since 2017 that GEMs outperformed North America, with GEMs also outperforming year to date (YTD).
This turnaround is largely a confluence of Korea, and to a lesser extent Taiwan, and their information technology—especially hardware—sectors. The correlation of 12 month’s performance to percentage Taiwan exposure is positive but weak. However, the correlation to Korea is much stronger (0.63).
Although index provider FTSE Russell doesn’t categorise South Korea as an emerging market, MSCI does. South Korean equities are therefore permissible core GEMs holdings. Indeed, they’ve been indispensable drivers of return, with the country’s Kospi share index up more than 100% year to date, and a touch less than 175% over 12 months to 24 June 2026.
The two largest constituents of the Kospi are Samsung Electronics (up 487% over 12 months to 24 June 2026) and semiconductor manufacturer SK Hynix (up 894%—and, no, there isn’t a missing decimal point). Depending on index construction, these two stocks can constitute more than half of some Korean equity indices. Which, of course, will have been a great thing over the past year.
As an indication of how Korea’s bull run has skewed indices, the country’s weighting in the MSCI Emerging Market index at the end of 2024 was 9.02%. In May 2026, it was 23.06%. The index’s IT weighting has also grown over the period: from 24.25% to 43.19%. In December 2024, there was one Korean stock in the index’s top 10—Samsung (2.25%). There are now five, with Samsung weighing in at 7.78%, or slightly less than half that of Taiwan Semiconductor Manufacturing Company (TSMC, 14.46%, up from 10.54%), which is by far the largest stock in broad EM indices.
This isn’t a broad IT success story, but rather a subset of it. The FTSE All-World Hardware index has outperformed Software by about 50 percentage points year to date, according to recent FTSE Russell analysis, which observes that playing ‘picks and shovels’ favours Korea and Taiwan, both heavily concentrated in semiconductor manufacturing. These companies pulled away when software stocks got hammered in “Saasmaggedon”, as investors panicked over AI’s potentially disruptive effect on them. In simple terms, developed market tech has a bias towards software; emerging market tech to hardware. Hence why GEMs have outperformed.
Over three years, the weight of EM Asia in the GEMs sector has risen from about 64% to almost 70%. Within Asia, Indian weightings have seen the most significant reduction, mainly over the past two years, with China also declining. Korea and Taiwan have benefited. The average weighting of Korea and Taiwan in the top 10 table below is 41.7%. To put that into context, Korea and Taiwan’s combined population is less than 2% of global emerging markets as a whole.
This matters in the context of capital markets’ dominant narrative du jour. When I last visited GEMs, this time last year, that was the potential impact of tariffs. While these are still with us, the market has shifted focus. What now? Well, take your pick. One concern, weighing heavy on many EMs, is the impact of the energy shock. But an overarching theme is the rewards and risks of AI.
While GEMs have worked as a very successful diversifier from their developed peers over the past year, this has been powered by the same underlying theme: AI. FTSE Russell’s allusion to picks and shovels dates to the nineteenth century great American gold rush: those that made their fortunes weren’t digging for gold but selling the shovels. Today’s shovel-merchants—Samsung, SK Hynix, and TSMC—are doing extraordinarily well. And to keep doing well, they’re going to need to keep shifting those shovels.
Table 1: Top-Performing Global Emerging Markets Over Three Years (with a minimum five-year history)
All data as of May 31, 2026; Calculations in GBP
Source: LSEG Lipper
This was first published on p17 of the July edition on Moneyfacts.
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The views expressed are the views of the author and not necessarily those of LSEG Lipper. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. LSEG Lipper cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.
