Investors have poured money into emerging markets in recent years as the search for big stock gains has migrated overseas and as they look for diversification beyond the concentrated S&P 500. But the U.S.-Iran military conflict has reframed the concentration question, highlighting the level of risk in emerging markets when it comes to gains being dependent on a select number of stocks, many tied to the AI boom.

The iShares MSCI Emerging Markets ETF (EEM) has had strong performance over the past few years and into 2026, up 29% in 2025 and still holding onto a small gain this year. However, its holdings remain largely tilted toward Asia, with large exposure to China, South Korea, India, and Taiwan, together representing over three-quarters of the index weight, and many of the top stocks tied to tech, including Taiwan Semiconductor and Samsung.

“If you look at the index within emerging markets, it’s still roughly 80% Asia,” Malcolm Dorson, senior emerging markets portfolio manager and senior v.p. head of the active investment team at ETF company Global X said on CNBC’s “ETF Edge” earlier this week. “That gives you a lot of concentration risk,” he said.

Overall, the EM index has a 30%-plus tech sector weighting.

South Korean stocks have experienced extreme volatility this week. The market posted its worst single-day move ever on Wednesday as the escalating war in the Middle East resulted in concerns about energy supplies to Asia, where top stocks in the memory sector fueling the AI boom rely on energy-intensive processes. After its worst day ever, the South Korean index rebounded on Thursday for its best day since 2008. The iShares MSCI South Korea ETF (EWY) is still down close to 13% this week.

Some of the enormous volatility in South Korean stocks is tied to how well they have performed recently, and how many retail investors have seen big gains from holding them. SK Hynix, a top holding in the broad emerging market indexes, gained 274% last year, while Samsung gained 125%.

A huge spike in oil prices since the outbreak of the military conflict has rattled global markets. On Friday, Brent crude futures topped $90 and U.S. West Texas Intermediate crude futures were closing in on that range, up more than 30% this week, while Brent has advanced nearly 26%.

The energy squeeze in Asian nations can be seen in China’s reported decision this week to tell domestic oil refining companies to stop any exports of fuel, and more Asian nations may follow with similar moves to retain energy stockpiles, energy market experts have said.

It isn’t time to abandon emerging markets, according to ETF investing strategists, and some macroeconomic factors may sustain outperformance in these markets over the longer-term. But Dorson said a “barbell approach” to investment strategy may be wise, balancing exposure between different types of emerging markets rather than relying on one region. He says thinking this way should lead investors who want to maintain international exposure to look at Latin America as a balance against Asian markets.

“I think you need to have both,” Dorson said.

Countries like Argentina, Brazil, and Colombia are heavily linked to energy and commodities market, and he said rising oil prices can provide an additional tailwind for those economies. “I’d say 25 to 33% of the story should be that attractiveness of getting exposure to commodities,” he said. He added that there are also political reform efforts in Latin American nations that could serve as additional tailwinds for economies. “All eyes are on political change that could drive fiscal reform,” he said, and he added that may benefit financial services sector stocks across the region.

Equities in several Latin America markets also trade at significant discounts to U.S. stocks, with many price-to-earnings ratios roughly half those in the S&P 500. For example, Vanguard’s S&P 500 ETF, VOO, currently trades at a P/E ratio of 28, while its emerging markets ETF, VWO, trades at a P/E ratio of 18.

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