AI chip boom turns one emerging-markets ETF into a Korea-heavy winner
A MarketWatch analysis says rival emerging-markets ETFs split sharply because MSCI and FTSE treat South Korea differently.
By Frankie Delgado · News Reporter
3 min read
A sleepy index-label dispute became a live-wire portfolio issue as the AI trade lifted South Korean chip stocks and helped one major emerging-markets ETF pull far ahead of another, according to MarketWatch columnist Daisoon Kim.
Kim compared two giant funds that many investors might expect to behave alike: BlackRock’s iShares Core MSCI Emerging Markets ETF, known as IEMG, and Vanguard’s FTSE Emerging Markets ETF, known as VWO. Both hold thousands of companies across emerging markets, charge low fees and manage more than $150 billion, Kim wrote.
Their returns, however, split sharply starting in the second half of 2025. From a shared January 2025 starting point, IEMG was ahead of VWO by as much as 25 percentage points at a mid-June 2026 peak, according to Kim’s analysis. By mid-July, after a pullback in technology shares, the gap was still more than 15 percentage points.
The difference was not stock-picking, Kim wrote. It came from the index rulebooks behind the ETFs.
One country, two labels
South Korea sits at the center of the split. Kim noted that the OECD and World Bank treat South Korea as developed by broad economic measures such as income, industry and technology.
Index companies use additional tests, including market access for foreign investors, currency convertibility and the ease of moving money. On that basis, MSCI still classifies South Korea as emerging, while FTSE Russell classifies it as developed, Kim wrote. MSCI reaffirmed the emerging-market status in June, citing restrictions tied to Korea’s currency, according to the MarketWatch column.
That distinction changes what investors own. Because IEMG tracks an MSCI benchmark, it has roughly 5% to 10% of its assets in South Korean stocks, according to Kim. VWO follows a FTSE benchmark and has essentially no South Korea exposure.
For years, Kim wrote, that difference was easy to overlook as emerging-market performance was more tied to China, commodities and global financial conditions.
AI made the gap matter
The AI boom changed the math. Samsung Electronics and SK Hynix are major producers of advanced memory chips, including high-bandwidth memory used in AI accelerators and data centers, Kim wrote. As spending on AI infrastructure climbed, those companies became part of the broader technology rally.
By early 2026, Samsung Electronics and SK Hynix together made up about 5.5% of IEMG’s portfolio, according to Kim. In July 2026, Kim said IEMG’s exposure included Taiwan Semiconductor Manufacturing Co. at 13.47%, Samsung Electronics at 6.30% plus 0.72% in nonvoting shares, and SK Hynix at 5.85%.
That left IEMG with a much heavier AI-hardware tilt than VWO. Kim wrote that many investors who bought IEMG for broad emerging-market exposure may have ended up with a larger bet on global AI spending than they intended.
The warning reaches beyond two ETFs. Kim argued that investors who already own U.S. tech stocks may not get as much diversification from an emerging-markets fund as they expect if that fund also holds chip suppliers tied to the same AI buildout. Nvidia designs AI processors in the U.S., TSMC manufactures many of them in Taiwan, and Samsung and SK Hynix provide memory, Kim wrote.
Kim’s takeaway: index funds still depend on human decisions about country classification, sector definitions, inclusions and rebalancing. Most of the time, those choices sit in the background. When a powerful market theme like AI takes over, they can decide which “passive” fund wins.
This story draws on original reporting from MarketWatch.