Taiwan’s Taiex replaced South Korea’s KOSPI as Asia’s top AI market winner this year. Taiwan got a 72% return, beating KOSPI’s 65% advance. Vikas Pershad said, "Taiwan offers a broader and deeper opportunity set." Taiwan’s supply chain strength and better earnings outlook helped it take the lead from Korean chipmakers.

The recent outperformance of the Taiwanese Taiex has also made it the best performing stock market in the world this year with a 72% return, overtaking KOSPI's 65% advance. At one point of the memory chip upcycle, the KOSPI was up over 100% for the year.

By CNBCTV18.com

South Korea's stock market, which grabbed headlines nearly every month of the year so far, first for its frenzy, and then the subsequent meltdown, is no longer the biggest winner of the AI trade in Asia, as the Samsung and SK Hynix-led market has been dethroned from the top spot by Taiwan.

Taiwan's benchmark Taiex outperformed the Korean KOSPI by 23 percentage points between the July-September period, which is the biggest margin since the turn of the century. Taiwan's earnings upgrades have also outpaced those of their Korean peers for the first time since March 2025.

According to last month's fund manager survey by Bank of America Corp., nearly 40% of the fund managers surveyed were "overweight" on Taiwan, compared to 25% for South Korea. 35% of the fund managers also expect Taiwan to be the next big beneficiary of the AI cycle compared to just 5% for Korea.

A greater presence across the AI supply chain and a more upbeat earnings outlook is driving the optimism for the Taiwanese stock market.

M&G Investments' portfolio manager Vikas Pershad said that Taiwan offers a broader and deeper opportunity set as its earnings come from volume, thereby making their earnings broader and stickier, while for Korea, most of the near-term earnings upgrades have come from price.

With presence across chip design and manufacturing, packaging, networking and servers, Taiwan has made its presence felt across the AI supply chain, while majority of the South Korean market is concentrated in the hands of two of its biggest chipmakers, Samsung Electronics and SK Hynix. Doubts have already begun to emerge as to how long will this memory upcycle run.

The recent outperformance of the Taiex has also made it the best performing stock market in the world this year with a 72% return, overtaking KOSPI's 65% advance. At one point of the memory chip upcycle, the KOSPI was up over 100% for the year.

KOSPI's correction from the highs is evident from the 19% and 33% plunge seen in shares of Samsung and SK Hynix respectively during the September quarter, following a strong six-quarter upmove, which triggered many-a-profit estimates upgrades and strong earnings from these companies. In comparison, shares of the Taiwan Semiconductor Manufacturing Company (TSMC) were up 3% during the quarter.

Societe Generale is also keeping its preference for Taiwan intact over South Korea, given the diverging earnings growth trajectory. The firm expects the memory price appreciation to slow over the coming quarters before normalizing in 2028.

Not all are bearish or gloomy over the Korean stock market outlook. Peter Lee of Citigroup, who also oversees its global tech and communications research, wants investors to start buying shares of Samsung and SK Hynix as the market is underestimating how much HBM chips will be needed in 2027.

On the valuation front, the Taiex now trades at 18 times its one-year forward estimated earnings, while the KOSPI only trades at 5.5 times, reflecting the "Korea discount".

Gains for Taiex have also been broader this year compared to its peers, as more than 10% of the index constituents have doubled or more in value this year, compared to just 4.1% for the KOSPI and 5.7% for the Nikkei 225 in Japan.