Taiwan Tops Global Markets, Overtakes South Korea as AI Trade Expands

Taiwan Emerges as Leader in Global AI Trade, Surpassing South Korea

As Taiwan takes the lead in the global AI trade, investors are reassessing their positions in the semiconductor sector.

Taiwan’s Strong Performance in AI Trade

In a remarkable shift in the global equity landscape, Taiwan has overtaken South Korea as the leading market in the burgeoning AI trade. The Taiex Index outperformed the Kospi by approximately 23 percentage points in the last quarter, marking the widest margin since the early 2000s. This surge in performance is attributed to Taiwan’s extensive integration within the AI supply chain and a more favorable earnings outlook compared to its Korean counterpart.

Bank of America Corp.’s recent survey revealed that 40% of fund managers are currently overweight on Taiwan, while only 25% favor Korea. This sentiment reflects a growing belief that Taiwan’s diversified exposure to AI-related sectors—ranging from chip design and manufacturing to networking—positions it more favorably as AI investments expand.

Earnings Growth and Market Sentiment

The earnings growth trajectory for Taiwan has also outpaced that of South Korea for the first time since March 2025. Analysts have upgraded earnings estimates for the Taiex by around 19% in the September quarter, compared to a 15% increase for the Kospi. This divergence is significant, especially as South Korean tech giants like Samsung Electronics and SK Hynix face declining stock prices, with drops ranging from 19% to 33% in the last quarter.

Strategists at Societe Generale have expressed a preference for Taiwanese equities over Korean ones, citing diverging earnings growth trajectories. They anticipate a slowdown in memory price appreciation, which has been a significant driver of South Korea’s recent market performance.

Valuation Discrepancies and Future Outlook

Currently, the Taiex trades at about 18 times its one-year forward estimated earnings, while the Kospi is valued at around 5.5 times. This disparity reflects ongoing concerns regarding the memory cycle’s sustainability and the so-called “Korea discount,” which has historically kept the market undervalued compared to global peers. Despite these challenges, a significant portion of investors still believe that Taiwan will benefit the most from the next phase of the AI cycle, with 35% of respondents in the BofA survey favoring Taiwan over just 5% for Korea.

Taiwan Semiconductor Manufacturing Co. (TSMC) has also shown resilience, with its shares rising 2.9% in the last quarter, marking a sixth consecutive quarterly gain. This performance underscores the broader gains within Taiwan’s tech sector, where approximately 10% of stocks have doubled in value this year, compared to just 4.1% for the Kospi.

Investment Implications and Strategic Considerations

As the AI landscape evolves, the next phase of growth for Taiwan’s stocks may hinge less on general AI enthusiasm and more on local tech companies that are well-positioned to navigate genuine bottlenecks in the AI value chain. Investors are advised to remain vigilant and consider the underlying fundamentals of companies within the semiconductor and AI sectors, as these will play a crucial role in determining future performance.

Key Highlights

• Taiwan’s Taiex Index outperformed South Korea’s Kospi by 23 percentage points last quarter.
• 40% of fund managers are overweight on Taiwan, compared to 25% on Korea.
• Earnings estimates for the Taiex rose by 19%, while the Kospi saw a 15% increase.
• The Taiex trades at 18 times forward earnings, while the Kospi is at 5.5 times.
• 10% of Taiex stocks have doubled in value this year, compared to 4.1% for the Kospi.

Investor Note: As Taiwan solidifies its position in the AI trade, investors should consider the broader implications of this shift, focusing on companies with strong fundamentals and diverse exposure to the AI supply chain.