STOCKS | Fund Managers Flag Concentration Risk as Asian Chip Stocks Dominate MSCI Emerging Markets Index

Investors have been cutting exposure to Asian chip stocks after a rally valued at $1.8 trillion began to reverse, raising concerns that these companies carry excessive weight in emerging-market indexes.

According to Jin10, Fidelity International and BlackRock have questioned the sustainability of the bull run in stocks such as SK Hynix and Samsung Electronics.

Over the past six months, the combined market capitalization of three companies nearly doubled, and their combined weight in the MSCI Emerging Markets Index is now about 29%, exceeding the weight of most single countries.

Caroline Shaw, a multi-asset portfolio manager at Fidelity International, said index concentration, together with a sharp rise in leveraged bets on South Korean chip stocks that amplifies price swings, are “warning signs.”

In the MSCI Emerging Markets Index, the combined weight of the three stocks is currently nearly three times the total weight of all Indian stocks, and SK Hynix alone has a larger weight than Brazil and South Africa combined.

Wei Li, global chief investment strategist at BlackRock Investment Institute, said the institution was “happy to take profits at this stage” due to sharp volatility in some large chip and memory stocks, and reduced its overweight in emerging-market equities relative to its benchmark.