Metals and AI power emerging markets

This year’s best-performing emerging market (EM) shouldn’t really be classified as an emerging market at all. South Korea’s high-tech industrial base is a match for any of the world’s leading developed economies. Yet restrictive trading rules on the local bourse see it consigned to the same global investing basket as Egypt and Peru.

Nonetheless, the local Kospi index has rocketed 66% this year. That reflects two massive tailwinds: AI, and a closing Korea discount. For the first theme, memory-chip champions Samsung and SK Hynix are cashing in on Big Tech’s splurge on semiconductors. For the second, Seoul has begun to implement pro-shareholder reforms, a copy of similar changes in Japan that unleashed a multi-year stockmarket rally.

Emerging market winners

Korea’s gains have helped push the MSCI EM benchmark to a 26% gain for the year to date. After years of lagging the developed-markets index, that rise comfortably outstrips the 18% gain for MSCI’s equivalent index for developed markets.

Those gains partly reflect more benign financial conditions for the developing world. US interest-rate cuts and a weaker dollar tend to push capital out of Wall Street and into more exotic locales. Yet the upswing has not been universal. This year’s big winners have tended to offer exposure to one of 2025’s two winning trends – AI-focused tech and the global metals rally. Like Korea, Taiwan’s Taiex (+20.5%) is rallying on soaring demand for AI equipment, largely driven by the enormous success of local chipmaker TSMC.

The mainland Chinese CSI 300 is up a healthy 17.5%; Hong Kong’s tech-biased Hang Seng has done even better, with a 28.5% gain. The east Asian economies now jointly account for 60% of the MSCI EM index, making the index a more concentrated bet than many EM investors would ideally like.

India, the index’s third-largest component, provides some diversification. The country’s thrilling growth story resembles that of China in the early 2000s. Yet share prices have become stretched, and the BSE Sensex’s 8% gain for the year is lacklustre. While India is a global leader in IT outsourcing, local markets offer little exposure to AI.

Southeast Asia is a mixed bag. Vietnam’s VN index has rocketed a third in the same year that it won an upgrade to emerging-market status by index provider FTSE Russell. Indonesia’ IDX Composite has gained 21%.

Malaysia’s KLCI is flat, while the Philippines’ PSEi index has slipped 7% amid signs of a domestic slowdown. Thailand’s SET index has retreated 10% as investors flee political turmoil and signs of a decline in the country’s crucial tourism sector.

Gold’s 60% rally this year has helped South Africa to shine. The JSE Top40 index has had a banner year, with local miners and an improved political outlook propelling it to a 40% gain. Copper champion Chile has done even better, with the IPSA index enjoying a massive 50% rally.

But not all commodities are created equal. The oil-heavy Saudi Tadawul all-share is off 13% amid weak energy prices. The US has picked fights with both the Mexican and Brazilian governments this year, but you couldn’t tell by looking at their stock exchanges, up 28% and 32% respectively.

The White House’s 50% tariffs on Brazilian imports have “backfired”, because “Brazil exports more than twice as much to China as to the US”, says Craig Mellow in Barron’s. Brazil’s strength in agriculture makes it a highly complementary trading partner. Investors also hope that next year’s presidential election could bring a pro-market candidate to power, echoing Javier Milei’s success in Argentina.

It has been another good year for emerging Europe. Poland, the region’s biggest market, is catching up fast with western Europe. A boom in defence spending has helped push the WIG20 to a 39% gain. Finally, difficult post-crisis reforms continue to pay dividends in Athens. The ASE index has rallied 41% this year and 119% over the past three years. The protracted Greek tragedy is finally over.

This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.