MW Maxed out on TSMC, Samsung and SK Hynix, what emerging- market funds are buying now
By Jules Rimmer
Positioning and concentration limits are forcing EM investors to trim TSMC, SK Hynix and Samsung and look elsewhere
YOSHIKAZU TSUNO/AFP via Getty Images
Fund managers who've made a killing this year with positions in the three top-performing emerging market stocks are increasingly being forced to diversify elsewhere.
A report from JPMorgan published Thursday observed that international investors with holdings in Taiwan Semiconductor Manufacturing, SK Hynix and Samsung Electronics have been running into constraints imposed by their mandates on the maximum weightings allowed in a single stocks or sectoral concentration.
Locally-traded shares of SK Hynix (KR:000660) have jumped 253% this year, as those of Samsung (KR:005930) have jumped 193% and shares of TSMC (TW:2330) have gained 54%.
As a consequence, as these stocks have continued their breathtaking rallies, portfolio rules have obliged managers to trim their positions. JPMorgan's macro research team has looked into the stocks and sectors where they've been redirecting their capital and found that in Taiwan, they have been reinvesting profits from TSMC to other Taiwanese tech counters.
Elsewhere fund managers booking gains in SK Hynix and Samsung have explored selected tech stocks in Malaysia, Thailand and Singapore. Chinese tech names KWEB have been sought out as have industrials and and, unsurprisingly given the disruption caused by the Strait of Hormuz blockade, energy storage.
On a single stock basis, the JPM report spotlights the top ten names with increased allocations in the last quarter. They are: Delta (TH:DELTA), Mediatek (TW:2454) , CATL $(CYATY)$, SK Square (KR:402340), Zijin Mining (CN:601899), ICICI (IN:532174), Accton (TW:2345), ASE (TW:3711), Sany Heavy (CN:600031) and Baidu $(BIDU)$.
Despite a near-25% rally in the emerging markets EEM index this year, setting one all-time high after another, the asset class still doesn't look overly stretched. JPMorgan strategists don't think positioning represents a significant risk, and after focusing on fundamentals, remain bullish on the region and actually lift its index targets.
So far in 2026, the MSCI Asia-ex Japan benchmark XX:899800 has returned about 30% and reached 1,191. In Thursday's report, the JPMorgan macro-research team led by Rajiv Batra set index targets in a base, bull and bear case scenario of 1,400, 1,600 and 1,000.
JPMorgan's composite measure of investor positioning in Asia has easedfrom 3Q25 highs to now 77%ile
Batra and team state that "our main message to clients has been to embrace the concentration risks inherent in current market conditions." While acknowledging that if global liquidity conditions tighten or the situation in the Persian Gulf deteriorates,there is a risk of a sell-off in emerging markets, JPMorgan insists it would be a buyer on any pullbacks.
The positioning risk is interesting for several reasons, but most particularly because the evidence suggests foreign institutions have been net sellers for most of 2026. A note from Gavekal analyst Udith Sikand, calculates a net $70 billion of exposure to Korea KR:180721, for example, has been trimmed this year. This is due to those fund mandates that limit single-stock exposure or sector concentration and forces portfolio managers to reduce weightings when the holdings rally.
Mandate constraints are leading foreign LO investors to sell Samsung and Hynix on the strong rallies - driving much of the foreign outflows in Korea
Buying of Korean equities then has been chiefly domestic retail investors as well as international hedge funds that have fewer restrictions on their portfolio holdings. Should investors be concerned about a bubble here then? Not necessarily, Batra argues. "Leverage evident in margin business and newly-launched leveraged exchange traded funds has definitely risen rapidly but remains small in the context of the overall market."
Moreover, the report observes Korean retail investors have only just started to repatriate capital from foreign equity markets and they see "a lot of room to go on that."
The relatively benign positioning outlook then allows JPMorgan to concentrate more on the fundamental momentum that shows no signs of relenting in the tech/AI space that is now broadening out into industrials and financials.
One further source of potential uplift to returns was identified by Gavekal's Sikand. The Korean won (USDKRW) has been in a long downtrend and fallen around 7% against the dollar this year alone. This is despite a current account surplus of 6.6% of GDP last year, a figure that is bound to expand even further this year. The Gavekal analyst attributes the weakness to capital outflows and provide several examples of how these factors should start to reverse and a strengthening won could boost returns to dollar investors.
-Jules Rimmer
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(END) Dow Jones Newswires
June 04, 2026 06:06 ET (10:06 GMT)
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