00:00The emerging markets index still has the same name, but its content has completely changed. In 2007 you got Brazilian oil, Russian gas and Chinese banks. Now you are mostly buying Taiwanese and South Korean semiconductors. The change in the composition of the index is very drastic. Raw materials and banks have stepped aside for artificial intelligence. Taiwan's weight has almost tripled. To around 27 % in the Emerging Markets index. South Korea and China have a weight of about 20 percent in the index, and Russia's story ended with the war of aggression in Ukraine. The war made the market inaccessible to foreign investors, and Russia was kicked hard in the teeth. From the emerging markets index soon after the war at practically zero price by so-called state action.

00:44This chart shows the weight with which different countries are currently represented. In the Emerging Markets index. As we can see, Brazil's weight has dropped by about 10 percentage points. Back in 2007, Brazil was one of the largest emerging markets countries included in this index. India's weight has risen slightly over the 20-year period, but what is noteworthy in this figure is that the size of these other countries that are not listed in this figure has dropped by about 14 percentage points in this index. The four largest countries actually account for 80 percent of the emerging markets index today, whereas 20 years ago it was about 50 percent. In 2007, emerging markets were the investor's top pick.

01:25The index returned about 40 percent that year, while the S&P 500 stayed at 5.5 percent. Then began the lost decade. The raw material supersycle ended, China's growth cooled and the dollar strengthened in 2011–2024. The emerging markets index returned only 38 percent, while over the same period the S&P 500 returned over 500 percent. It was the era of Nvidia, Microsoft and Apple, so the return difference is absolutely massive over that period. In 2025, the emerging markets index returned about 34.4 % and the S&P 500 17.9 %. So there is a difference of about 16 percentage points, which is massive, and this year the emerging markets index has left the S&P 500 index behind. From this figure we can see the return comparisons of emerging markets relative to the S&P 500.

02:19These figures are total return figures, which also include dividends. Over a 20-year period. Emerging markets have beaten the S&P 500 index 8 times. However, the return differences are relatively massive, meaning the average return of the Emerging Markets index over a 20-year period is 6.1 % and that of the S&P 500 is 11.1 %. Intuitively, these return figures might feel low considering what kind of market we have had here over the last 10 years. But these perhaps intuitively lower returns are explained by the financial crisis year of 2008, when the emerging markets index halved and the S&P 500 decreased by 37 %. The most significant return differences over recent years are explained by the year 2021, when the S&P 500 returned close to 30 % and emerging markets were in the same year. A negative return, meaning 2.2 % in the negative in 2021, and after that we notice that the S&P 500 has performed with a very clear margin, but then 25.

03:21And 26. The year has brought a change to this, with emerging markets experiencing a clear rebound. In these returns, usually when following investment discussion about emerging markets, it feels like one big reason why people invest in emerging markets is that investors want global diversification outside of the United States. Meaning investors want to invest in Latin America, emerging Asia. But when we look at what this emerging market index contains, the investor actually no longer gets global diversification, because the weight of Taiwan and South Korea in this index is almost 50 %. Meaning half of the money goes to South Korea and Taiwan, which intuitively might not be emerging markets.

04:01But the reason why Taiwan and South Korea are generally counted as emerging markets is due to the currency. Meaning for example South Korea has long had something like this Korea discount, meaning these currencies are not as easily exchangeable even though these are very developed nations. But still these companies have traditionally been counted among emerging countries. When investing in the emerging markets index, the investor no longer gets diversification into emerging countries, but instead emerging markets indexes invest in Asia's semiconductor cycle. If you own for example the S&P 500 index, a world index or US tech stocks, you already have a very high weight in this semiconductor cycle. And this emerging markets index actually just emphasizes, it increases this weight in the semiconductor cycle and generally in this AI theme. The emerging markets index also has a very high country risk. Since Taiwan's weight in the emerging markets index is 27 percent, it is a very massive overweight. in this index.

04:59So geopolitics also plays a role. Meaning if China were to decide to attack Taiwan, no one can say what would happen to the state of Taiwan. What would happen to the Taiwan stock market? What would happen to Taiwanese companies, since TSMC has a 15 % weight in this index and TSMC has an absolute massive impact on the entire global economy. On this entire semiconductor cycle, the entire AI cycle. TSMC manufactures semiconductor chips. What do all these big ones pay? For example, Nvidia's GPUs are manufactured by TSMC. All these that rely on TSMC have a very critical role for the entire global economy. A Chinese attack on Taiwan could have significant impacts on the global economy.

05:42For the S&P 500 index this would probably be a total game over situation for the entire stock market, because TSMC is the primary supplier for these mega-cap companies. TSMC is a manufacturer of semiconductor chips. But on the other hand, the market economy is a curious mechanism in that the market economy will find a way. Meaning if something were to happen to TSMC, an absolute enormous amount of resources would be put into the world to be able to manufacture these semiconductor chips ourselves, at which point this dependence on TSMC would decrease. But in the same sentence, if something were to happen to TSMC, it would be such a game over situation for the stock market at least in the short term before other players gained the expertise or capacity to manufacture these semiconductor chips. Of course it is good to note that TSMC also has factories in other countries, so this is not purely a Taiwan play, although it is in a very significant position. The 9 largest companies in the emerging markets index account for 37.5 % of the entire index. And when we look at this list, we notice very clearly that these semiconductor companies rule this sector.

06:45Meaning TSMC's weight is 15 %. Samsung, this memory manufacturer, 8 %. SK Hynix, another South Korean memory manufacturer, 5.5 %. Then there are these Chinese tech giants Tencent, Alibaba. These have a slightly lower weight, but nevertheless a significant position. Then there is the Mediatek company, which is also a Taiwanese company. This is also related to semiconductors, as is Delta Electronics. And perhaps one fun observation on this list is that China Construction Bank is the only bank on the list of the 9 largest companies, and there are almost 1,200 companies in this emerging markets index. So this list is massive from 24 countries, although the 9 largest companies make up 37.5 percent. Taiwan. South Korea accounts for about 50 percent of this index. The emerging markets index, just like for example the S&P 500.

07:34These are market-cap weighted indexes, which practically means that the higher a company's market capitalization rises, the greater its weight. There is in this index. Meaning if we had for example an S&P 500 index, the largest companies in it probably have some 40 percent weight in the top ten right now. But if it were an equal weight fund, then there is the S&P 500. There are 500 companies that have. Each company has a weight of half a percentage point in that index. This way you can fight back against these heavy weightings in certain companies. Brazil's weight in this emerging markets index is just under 4 %, and Brazil is actually an absolute excellent example of how a market-cap weighted index works. Meaning a market-cap weighted index, meaning all those basic indexes that just come to mind, they buy those companies whose share prices rise, meaning those whose market capitalizations rise, and the size of those companies whose shares fall, meaning market cap falls, decreases in these indexes.

08:32Meaning in 2008 the investor owned a lot of Brazilian oil at the peak when Brazil's weight was about 13–14 %. Now Brazil is owned very little, it is just under 4 %, because Brazil's stock market went absolutely nowhere for twenty years. Meaning practically how a market-cap weighted index works is that if we take for example some playful index whose market capitalization is 100 billion euros, and then company A's market capitalization is 1 billion, making one billion out of a hundred billion, then company A's weight in this index is 1 %. Then we make a scenario where company A's share price doubles, meaning the market capitalization doubles and the values of all other companies remain unchanged. Meaning none of the other companies move anywhere, but company A's value doubles. Whereupon company A's weight in this new index is thus 2 billion divided by 101 billion, meaning it is just under 2 %, about 1.98 percent. Meaning this is how a market-cap weighted index works, meaning it buys those shares whose share prices rise. And if the share price decreases, its weight in these indexes comes down. But that is not all for this time. Thank you very much for watching the video! Remember to like the video. Comment below the video what you thought of this video? You can also suggest topics for future videos to me. Read the research. Perhaps good stockpickers.