Momentum strategies were a powerful force for global equities in 2024, primarily ones that followed artificial intelligence (AI) and its extended value chain. The trend was particularly acute in emerging markets (EMs).
For the calendar year, virtually all of the returns in the MSCI EM Index could be traced to just five stocks, led by TSMC, which on its own contributed nearly half of the index’s return. The dominance of these stocks was most evident in the fourth quarter. Every sector except Information Technology fell, and the only regions that rose were the Middle East, which eked out a small gain, and Taiwan, home to a number of prominent tech stocks including TSMC (the “T” stands for Taiwan.)
TSMC rocketed on surging demand for AI-related chips and a seemingly unassailable leadership position in the industry following failed attempts by competitors to take market share in advanced process technologies. The company has more than 80% market share in leading-edge semiconductors globally and fabricates almost all of the chips designed by NVIDIA. TSMC expects AI-related revenue to grow at a cumulative rate of 50% over the next five years.
Hon Hai Precision, the giant Taiwanese electronics contract manufacturer, also saw its shares soar as growth prospects have been boosted by the demand for AI servers. The other top-five contributors, however, came from China and outside the AI-momentum trade: Tencent, Meituan, and Xiaomi. ∎