34% is roughly what the iShares Core MSCI Emerging Markets ETF returned over the past year, a jump that has turned some broad emerging-markets index funds into unintended bets on AI hardware and chipmakers. The shift comes as semiconductor and memory firms that supply AI training and data centres outperformed peers, pushing country and sector weights inside passive EM trackers. That matters for households and advisers who expect diversified exposure from funds such as IEMG and Vanguard's VWO, because reweighting happens automatically as market caps change. New ETF listings on the ASX, including products from VanEck and Global X, mean this trend will get more attention in Australia through mid 2026.
34% is the one-year return that rerouted hundreds of billions in passive money toward chipmakers, according to MarketWatch and Kavout MarketLens analysis. MarketWatch framed the outcome as an "accidental" concentration of AI exposure inside funds bought for broad emerging-market diversification, while Kavout MarketLens also linked the surge to a weaker US dollar and the role emerging markets play in the global AI supply chain.
How index mechanics concentrated AI exposure
The mechanics are simple and automatic. Index funds track market-cap benchmarks, so when a handful of companies see rapid valuation gains the passive funds must increase their holdings to match the index. That process magnifies winners. In this cycle, rapid gains at semiconductor and memory makers have pushed South Korean and Taiwanese chipmakers to much larger index weights than a few years ago.
The two largest emerging-markets ETFs, iShares Core MSCI Emerging Markets ETF, known as IEMG, and Vanguard's FTSE Emerging Markets ETF, VWO, sit in the hundreds of billions of dollars in assets. Because of their scale, any index reweighting creates automatic, large flows into the companies that gain market-cap share. Retail and institutional investors who hold these funds get that exposure whether they meant to or not.
Concrete examples and the Australian angle
The composition of AI-branded funds makes the point. The Global X Artificial Intelligence ETF, GXAI, which tracks an Indxx Artificial Intelligence and Big Data index that emphasises AI hardware, places South Korea at about 13.2% and Taiwan at about 5.3%, alongside a dominant US weight near 68.3%. GXAI's five largest holdings are SK Hynix at about 8.19%, Micron Technology about 7.12%, AMD about 5.26%, Intel about 5.02% and Samsung Electronics about 4.99%.
Those numbers show how hardware makers, not software firms, can drive the composition of both AI-labelled funds and broad emerging-markets trackers. For Australian investors that matters now more than before because the local ETF market is booming.
Industry reporting put ASX-listed ETF inflows at a record A$62 billion in the last financial year, with total assets under management near A$362 billion and projections above A$400 billion by year-end.
Supply and product activity on the ASX echoes the shift. Global X Management in Australia has broadened its suite to include multiple thematic funds across AI, semiconductors, robotics and battery technology, and most of those products are already quoted on the ASX. VanEck has announced three new ASX ETFs, including a quantum computing product and a global semiconductors fund, scheduled to list in early August 2026. Global X also has at least one fund pending ASX approval.
For households using passive funds to keep costs low and portfolios simple, the structural consequence is higher implicit exposure to AI hardware and to the countries that host large chipmakers. That changes the risk profile. Returns in a diversified emerging-markets ETF are now more sensitive to AI-cycle news, chip-capacity investments, supply-chain shifts and geopolitical tensions in East Asia.
Put another way, buying broad emerging-markets exposure today isn't the same as it was a few years ago. A handful of high-return hardware firms have pulled the index along, and passive vehicles must follow.
VanEck plans three ASX ETFs scheduled to list in early August 2026, and Global X had at least one fund pending ASX approval as of 3 July 2026. Those listings will add more explicit ways for Australian investors to target semiconductors and AI hardware, and they will also increase the chance that broad emerging-markets funds continue to carry significant, implicit AI exposure. Originally reported by marketwatch.com.
This article was created with AI assistance.
