Key Takeaways:
South Korea and Taiwan have become the world’s hottest equity markets in 2026, with the AI-driven surge in semiconductor demand catapulting their stock benchmarks to record highs and reshaping global investment flows. The Kospi index in Korea has rallied about 80% this year, a pace unmatched by any other major market, while Taiwan’s Taiex is up about 40 percent.
“The main driver is the AI build-out story,” said Florian Neto, head of investment for Asia at Amundi. “Korea and Taiwan had become very crowded expressions of the AI infrastructure boom, so once inflation concerns pushed yields higher and US tech momentum wobbled, investors took profits where gains had been strongest. But I would not say this reshapes the fundamental investment narrative.”
At the heart of the rally are Samsung Electronics Co., SK Hynix Inc., and Taiwan Semiconductor Manufacturing Co., a chip triumvirate whose combined market value has swelled to about $3.5 trillion. The tech sector now accounts for over half of Korea’s equity market and nearly 80% of Taiwan’s. In Korea, the concentration is particularly stark: Samsung and SK Hynix alone now represent about 49% of the Kospi, with a joint valuation of roughly $2 trillion.
The intense concentration in these few names highlights the high-stakes bet on the AI supply chain. While valuations in Taiwan have climbed, with the Taiex trading at 18.2 times forward earnings, Korean stocks remain comparatively cheap at 7.6 times, well below their five-year average of 10.2 times and far lower than the Nasdaq Composite’s 27.4 times. This has occurred even as foreign investors sold a net 94 trillion won ($62.4 billion) of Korean shares this year, a move analysts see as portfolio rebalancing rather than a bearish turn.
The frenzy is rooted in the surging demand for high-bandwidth memory (HBM), a critical component for the GPUs that power AI models. SK Hynix, Samsung, and Micron Technology are the only companies that produce HBM at scale, creating a bottleneck that gives them immense pricing power. This dynamic is reflected in the performance of the Roundhill Memory ETF (DRAM), a pure-play fund with about 73% of its assets in these three companies, which has returned roughly 79% since its April launch.
Despite the record foreign selling in the Kospi, the soaring share prices of these chip giants have inflated the market’s total capitalization so rapidly that foreign ownership has paradoxically approached an all-time high of 39.43 percent. This suggests many institutional investors are taking partial profits to rebalance their portfolios, not abandoning the Korean market. Further supporting this view, MSCI recently increased South Korea’s weighting in its emerging markets index to 21.7%, compelling global funds that track the benchmark to hold more Korean equities.
However, the extreme concentration presents new risks. The Kospi’s fortunes are now inextricably linked to a handful of semiconductor giants, making the broader market more volatile and dependent on the AI hardware cycle. “Diversification can lead to weaker returns while concentrated investments carry greater risks,” wrote Bloomberg Opinion columnist Shuli Ren, noting that the AI market is increasingly dominated by a few winner-take-all companies. For now, the AI infrastructure boom continues to underpin the bull case, but the ride is getting bumpier.
This article is for informational purposes only and does not constitute investment advice.
