With the bull market now in its third year, Wall Street continues to break records, driven mainly by artificial intelligence and a few big blue chips.
What has changed this year is that Wall Street is no longer leading the race. Emerging market indices have taken the lead after several years of underperformance. The MSCI Emerging Markets index is up 30% this year, compared with 15% for the S&P 500.
This performance is mainly due to Asian indices, and more specifically to a few stocks in these indices.
According to calculations by the Financial Times, 50% of the Hang Seng's rise this year comes from six major tech stocks, such as Alibaba and Xiaomi.
In South Korea, the concentration is even greater. Two stocks (SK Hynix and Samsung) account for 40% of the Kospi's performance, which is also the best-performing index among developed countries, with a 67% increase since January 1.
And the prize for concentration goes to the Taiwanese market, dominated by the overwhelming weight of TSMC and its nearly $1.3 trillion market capitalization. TSMC is responsible for more than half of the TSEC 50's gains this year.
Asian markets therefore now have the same flaws as Wall Street: highly concentrated markets, where a few AI-related stocks are driving the indices.
The rally in emerging markets is therefore not so much a reflection of investors' desire for diversification, but rather the idea of playing the AI theme through other players, who are often suppliers to the big US tech companies. And with valuations that are slightly more attractive than in the United States. The Hang Seng, a technology-heavy index, is currently trading at 20x earnings, compared with 35x for the Nasdaq 100.
The US markets and emerging market indices are therefore closely linked. Any correction on Wall Street amid concerns about valuation levels is reflected in similar movements in Asia.
