Taiwan Surpasses South Korea in Global Markets as Artificial Intelligence Trade Expands

Taiwan has pulled ahead of South Korea to become the top-performing market in the global artificial intelligence trade as investors favor its deeper supply chain links.

Market Performance

The Taiex Index beat the Kospi by about 23 percentage points last quarter, which is the widest margin seen in decades. Taiwan's benchmark index is up 72% this year, making it the top performer among more than 90 equity indexes tracked by Bloomberg. The Kospi sits in second place with gains of about 65%. Earnings upgrades for Taiwan also outpaced those for its Korean peer for the first time since March 2025. About 40% of fund managers surveyed by Bank of America Corp. last month said they were overweight Taiwan, compared to 25% for Korea. When asked which market would benefit most from the next phase of the artificial intelligence cycle, 35% of survey respondents chose Taiwan while only 5% picked Korea.

Driving Factors

Experts point to structural differences in how earnings are generated. Vikas Pershad, a portfolio manager at M&G Investments in Singapore, noted that Taiwan offers a broader and deeper opportunity set because its earnings come from volume, making upgrades stickier. Korea's recent earnings have come largely from price. Taiwan gives investors exposure across chip design and manufacturing, packaging, networking, and servers. Meanwhile, Korea's market leadership remains heavily concentrated in chipmakers Samsung Electronics Co. and SK Hynix Inc., leaving it more exposed as doubts grow about the memory upcycle. Shares of Samsung and SK Hynix plunged between 19% and 33% in the three months ended September.

Diverging Views

Societe Generale SA strategists including Rajat Agarwal noted a preference for Taiwan due to these diverging earnings growth trajectories. They pointed out that memory price appreciation is expected to slow over coming quarters before normalization in 2028 amid rising Chinese competition. On the other side, Peter Lee, a managing director at Citigroup Inc., advised investors to buy shares of firms like Samsung and SK Hynix because the market is underestimating the future need for high-bandwidth memory chips. Regarding valuations, the Taiex trades at about 18 times its one-year forward estimated earnings, while the Kospi trades at around 5.5 times due to concerns over a memory peak and the longstanding Korea discount.

Context

Global financial markets often shift leadership as different sectors cycle through periods of peak demand and supply chain bottlenecks. Regional equity indexes reflect investor sentiment on technological supply chains, where hardware manufacturers and chipmakers experience rapid valuation changes based on global corporate spending patterns.