IEMG and the Strategic Case for Emerging Market Exposure in a Diversified Portfolio

The global artificial intelligence (AI) revolution is no longer confined to Silicon Valley or Shenzhen. Emerging markets, long seen as followers in technological adoption, are now pivotal battlegrounds in the AI arms race. For investors seeking high-risk/high-reward opportunities, the iShares Core MSCI Emerging Markets ETF (IEMG) offers a compelling vehicle to capitalize on this transformation. By analyzing IEMG's exposure to AI-driven sectors and the macroeconomic tailwinds reshaping emerging economies, the case for strategic allocation becomes increasingly persuasive.

The AI Boom in Emerging Markets: A Catalyst for Growth

AI adoption in emerging markets has accelerated dramatically since 2023, driven by policy support, declining technology costs, and a hunger for productivity gains. According to a report by the Stanford HAI 2025 AI Index, AI-enabled medical devices alone saw 223 FDA approvals in 2023, signaling rapid integration into critical sectors. Meanwhile, India's high user adoption of AI-despite lagging infrastructure-has attracted investments from global tech giants like Microsoft and Google, positioning it as a potential AI infrastructure hub.

Emerging markets are also leveraging AI to leapfrog traditional development stages. China, for instance, has surged ahead in domestic chip technology, with models like Alibaba's Qwen3-Max challenging U.S. dominance in certain AI applications. Similarly, Taiwan and South Korea's semiconductor manufacturing prowess has made them indispensable to the global AI supply chain. These trends underscore a broader shift: AI is no longer a luxury but a necessity for economic competitiveness in the 21st century.

IEMG's Strategic Exposure to AI-Driven Sectors

IEMG, which tracks the MSCI Emerging Markets Investable Market Index, holds approximately 2,725 stocks, with 26% allocated to technology and 16% to semiconductor and chip manufacturing giants like TSMC, Samsung, and SK Hynix. These companies form the bedrock of AI infrastructure, supplying the compute power and memory chips critical for training large language models and deploying AI at scale.

The fund's diversification extends beyond hardware. Financial services (21%) and consumer discretionary (12%) sectors- both ripe for AI disruption-complement its tech exposure. For example, Tencent Holdings, a top IEMG holding, is integrating AI into fintech and gaming, while India's consumer discretionary firms are adopting AI to enhance customer personalization. This multi-sector approach positions IEMG to benefit from AI's cross-industry ripple effects.

High-Risk, High-Reward Dynamics

Investing in AI-driven emerging markets is inherently volatile. While 78% of organizations reported AI usage in 2024-up from 55% in 2023-only 39% saw measurable enterprise-level profitability gains. This gap between adoption and monetization reflects the early-stage nature of AI's economic impact. Emerging markets face additional hurdles: inadequate STEM talent, energy constraints, and regulatory uncertainty. For instance, GCC nations are investing heavily in AI but must overcome a reliance on sovereign wealth rather than organic innovation ecosystems.

Yet these risks are counterbalanced by asymmetrical rewards. Emerging markets offer attractive valuations compared to overpriced U.S. tech stocks and benefit from policy tailwinds. The U.S. accounted for 92% of GDP growth in H1 2025 due to AI-related investments, but similar momentum is now emerging in Asia and the Middle East. IEMG's low expense ratio (0.09%) and $118.5 billion AUM further enhance its appeal as a liquid, cost-efficient gateway to this growth.

Conclusion: A Strategic Allocation in a Diversified Portfolio

For investors with a medium-to-high risk tolerance, IEMG represents a strategic bet on the AI-driven renaissance of emerging markets. While the path to profitability is uneven, the fund's exposure to foundational AI sectors and macroeconomic tailwinds-such as policy-led growth and global supply chain shifts-justifies its inclusion in a diversified portfolio. As the 2025 AI Index Report notes, "AI is reshaping economic structures, and emerging markets are no longer on the sidelines-they are central to the next phase of global innovation." IEMG, with its broad and sectorally balanced holdings, is uniquely positioned to capture this transformation.