When a few stocks become the market
The S&P 500 has 500 companies, the Nikkei 225 has 225, and the STOXX Europe 600 lists, you guessed it, 600. Yet stock market concentration is rising, with a much smaller group of companies and sectors increasingly influencing whether many of the world’s major indices go up or down.
Over the past decade, the impact of a handful of stocks on index performance has gradually increased—and that’s not the only issue. Indices are also becoming more concentrated in certain industries, such as information technology or the financial sector. This creates opportunities for higher returns, but also greater risks.
Markets in Korea and Japan have been at the forefront of this trend over the last year, with increasing concentration across both companies and sectors. Yet the phenomenon is not unique to Asia. In fact, Germany’s DAX is the most concentrated index, though its volatility remains muted. It is also the only index in which industrial firms account for the largest share.
Meanwhile, the US market—often portrayed as being dominated by the Magnificent Seven—is surprisingly diverse. Indices like the S&P 500 are far more balanced and much less volatile than their Asian peers.
Market leaders become market risks
Of course, markets aren’t concentrating by themselves. The trend is driven by company performance: firms that deliver stronger financial results attract more capital, and investors—chasing the highest returns—tend to keep rewarding those pulling ahead.
In recent years, that strategy has paid off: the Magnificent Seven’s average annual return is around 30 percent, compared with around 15 percent for the S&P 500. As these companies outperform their competitors, they take up a larger and larger share of the indices that track them. For example, the highly concentrated Nasdaq-100, with its ten largest companies accounting for around 50 percent of the index, outperformed the S&P 500 in fourteen of the past eighteen years.
The problem is that this kind of concentration amplifies not only the gains when large companies succeed, but also the losses when they falter. And, as history shows, companies come and go.
In the early 1900s, US Steel and Pennsylvania Railroad dominated the economy. Today, they are minor players or no longer exist. The same is true for more recent corporate giants: Kodak was once one of the world’s most valuable companies, but failed to adapt to digital photography and went bankrupt in 2012. BlackBerry once dominated the smartphone market for business professionals, only to be replaced by Apple and Android-based smartphones in less than a decade.
In a balanced and diverse market, the rise and fall of individual companies rarely determines the fate of the entire index. But in a highly concentrated market, their decline can have outsized consequences for markets—and for the passive funds, pension funds, and insurance portfolios that rely on them.
A South Korean wake-up call
Last month’s stock market meltdown in South Korea showed how quickly market concentration can turn from a strength into a vulnerability. The nation’s benchmark KOSPI 200 index contains hundreds of companies, but two of them—Samsung Electronics and SK Hynix—represent more than 50 percent of its market capitalization.
The concentration is even more striking because both companies are major players in the same industry: semiconductors. When SK Hynix reported a 557 percent increase in operating profit in late July, investors still saw the results as disappointing, with earnings failing to meet lofty expectations. The fallout was immediate: the KOSPI plummeted by over 20 percent, recording one of the largest corrections in its history—surpassing the decline during the 2008 global financial crisis and wiping trillions of dollars from the market. A gradual recovery only followed once Korean officials intervened.
Since the start of 2026, the KOSPI has been more than three times as volatile as its peers. However, this volatility has not only worked against investors: Despite the recent decline, the index has still outperformed other major indices.
Is Japan next?
South Korea may be the most recent example of a market facing concentration risks, but it is not an isolated case.
Japan’s market recorded the second-largest increase in concentration over the past year. Between July 2025 and July 2026, the ten largest companies’ share of the Nikkei rose from 40.9 percent to 48.7 percent, while the three largest sectors’ share rose from 63.7 percent to 70.8 percent. So far, this shift has not produced a Korean-style crisis, but—like the KOSPI—the index is becoming increasingly reliant on a small group of companies and could face similar pressures.
That said, Japan’s corporate structure provides some protection: its conglomerates, including SoftBank Group, Sony, and Hitachi, are more diversified across sectors than their Korean counterparts. A weaker yen also makes Japanese exports more competitive in the global market while boosting the value of overseas earnings for exporters.
The S&P 500 is not immune
And what about the US market? Here, the picture is more nuanced. While US indices are also moving toward greater concentration, they remain far more diversified across companies and industries.
In the S&P 500, which is much more diversified than the Nasdaq-100, the ten largest companies account for approximately 37.6 percent of the index, while sectoral concentration stands at 38 percent. Moreover, the largest companies operate across a wider range of industries and have broader revenue streams. The unparalleled depth and liquidity of US markets also provide an important buffer against concentration risks.
Still, the US is not immune. Concerns that more of its leading technology companies are becoming dependent on the same AI investment cycle show that even a more diversified market can face concentration risks over time. Investors need only look to South Korea and Japan to understand how quickly those risks can materialize.
Bart Piasecki is an associate director at the Atlantic Council’s GeoEconomics Center.
This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in receiving the newsletter, email JYin@atlanticcouncil.org.
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