Diversification is becoming harder to achieve

Principal Asset Management

Magdalena Ocampo

Research

6 Pages

Principal Asset Management explains why traditional geographic diversification is becoming harder as AI, energy shocks, and supply chains increasingly connect global markets. China stands out as a more independent diversifier, while Korea and Taiwan remain closely tied to the U.S. AI cycle.

Key Takeaways

Index Concentration Risk: Technology now represents nearly 40% of the S&P 500, increasing vulnerability if hyperscaler spending expectations soften across the AI ecosystem.
AI Cycle Exposure: MSCI South Korea and Taiwan equity indices returned roughly 117% and 63% year to date in USD terms as of June 1.
EM Weight Shift: Korea and Taiwan now make up nearly half of the MSCI Emerging Markets Index, roughly double their 2020 weight.
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