Taiwan, Korea Rally Built on AI Chip Concentration
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- South Korea's Kospi has surged more than 80% this year while Taiwan's Taiex has repeatedly hit new records — Goldman Sachs' Tim Moe attributed the rally to an "AI hardware theme," estimating Taiwan is "well over 80%" exposed to AI-related revenue and South Korea around 60%.
- TSMC now accounts for more than 40% of Taiwan's Taiex index with a market cap of roughly 58 trillion Taiwan dollars ($1.85 trillion), while Samsung Electronics and SK Hynix together made up a record 42.2% of the Kospi in May per Manulife — Samsung's market cap pushed past $1 trillion last week.
- Taiwan's regulators recently relaxed limits on how much domestic funds can allocate to a single stock, and UOB's Qi Wang estimated the change could direct $30 billion to $40 billion into TSMC alone, potentially reinforcing the concentration risk policymakers are trying to manage.
- Goldman Sachs estimated South Korean earnings growth could surge 300% this year, while JPMorgan's Mixo Das said 40% to 45% of the S&P 500 is now AI-related — underscoring how the crowding extends well beyond Asia.
- Taiwan and South Korea are both large energy importers, leaving their stock markets vulnerable to oil price spikes from Middle East tensions such as the Iran conflict, according to Aberdeen's Jamie Mills O'Brien.
- South Korea's market captures a broader slice of its economy than Taiwan's, with investors also piling into shipbuilding, defense, power equipment and the "K-culture" trade — while Taiwan's market has become "increasingly detached from the domestic economy" as it tracks TSMC and global semiconductor demand, per Goldman.
- Denmark and Saudi Arabia — markets dominated by single corporate champions Novo Nordisk and Saudi Aramco — were among the world's weakest-performing stock markets at the end of last year, offering a cautionary tale about concentrated index exposure.
Why it matters: Goldman and other strategists warn that extreme concentration — TSMC at 40%+ of the Taiex, Samsung and SK Hynix at 42.2% of the Kospi — leaves both markets vulnerable to AI-specific shocks ranging from supply chain disruptions to slower data-center spending. Santa Lucia's Florian Weidinger cautioned that global allocators adding Asian benchmarks may unknowingly be doubling their AI exposure already embedded in U.S. tech holdings.
