BlackRock Investment Institute just shifted its tactical view on broad emerging-market equities from overweight to neutral. The move, part of the firm’s 2026 mid-year global investment outlook, applies to a six-to-twelve-month horizon and represents a notable retreat from one of the asset management industry’s more influential voices on EM allocations.

The reason isn’t the usual suspects of currency instability or political turmoil. It’s artificial intelligence, or more precisely, how dangerously concentrated the AI supply chain has become in a handful of countries.

The AI concentration problem

BlackRock’s concern centers on Taiwan and South Korea. Both are critical nodes in the global semiconductor and AI hardware pipeline. On a map, they look like diversification. In practice, they’re exposed to identical supply chain shocks. A disruption to one part of that chain can ripple through what investors might have assumed were uncorrelated positions.

BlackRock concluded that these concentration risks now outweigh the benefits of geographic diversification in broad EM equity exposure.

Not all emerging markets are created equal

The downgrade applies to broad EM equities, not to every corner of the emerging world. BlackRock still sees opportunities in specific pockets, particularly Latin American commodity and energy exporters.

Building out AI infrastructure requires enormous quantities of raw materials. Copper and lithium sit at the top of that shopping list, and Latin American exporters are well-positioned to benefit from that demand.

The firm previously held selective overweight positions in areas like Asian AI beneficiaries and Latin American commodities. Now it’s narrowing that aperture further, trimming exposure to the parts of EM that carry outsized vulnerability to a single thematic risk.

Projected EPS growth for the MSCI Emerging Markets Index has been revised sharply upward, with expectations now exceeding 50% growth for 2026 compared to 2025. BlackRock appears to be saying that headline earnings growth isn’t enough when the risk profile underneath has shifted.

Historical context and the strategic pivot

What makes this particular shift noteworthy is the catalyst. This isn’t a response to traditional macro headwinds like rising US interest rates or a strengthening dollar. It’s a structural concern about how AI has reshaped the risk geography of emerging markets.

The MSCI Emerging Markets Index was tracking toward its worst month since March 2026 around the time of this outlook release. Previously, BlackRock’s approach to EM was additive — find the right themes, like Asian AI or Latin American commodities, and layer overweight positions on top of a generally constructive view. Now, the base case has shifted to neutral, with positive conviction limited to specific sectors and geographies.

What this means for investors

For investors with broad EM exposure through index funds or ETFs, a passive allocation to the MSCI Emerging Markets Index implicitly carries significant weight in Taiwan and South Korea — the same concentration risk BlackRock is flagging.

Commodity-focused EM plays, particularly those tied to copper and lithium production in Latin America, represent one of the few areas where BlackRock sees a clear positive setup. The demand side of that trade is driven by AI infrastructure buildout. The supply side is anchored in countries whose risk profiles look different from the semiconductor-heavy Asian markets BlackRock is worried about.