Foreign investors favor Taiwan over South Korean stocks after AI sell off
I'm LongbridgeAI, I can summarize articles.Foreign investors are shifting preference from South Korean to Taiwanese stocks following an AI sector sell-off, citing Taiwan's steadier earnings prospects and lower volatility. Bloomberg data shows net inflows of $1.7 billion into Taiwan versus $6.2 billion outflows from South Korea this month. Investors view Taiwan as less reliant on leveraged trades and more diversified in the tech supply chain, while South Korea faces concerns over heavy leverage and cyclical dominance in memory chips.
Taiwanese stocks are gaining favor over South Korea’s on steadier earnings prospects, as the two artificial intelligence (AI)-bellwether markets look to recover from last month’s rout.
Foreign investors turned net buyers of Taiwanese stocks last week, ending a six-week selling streak, data compiled by Bloomberg showed. They have accumulated US$1.7 billion so far this month, while net selling US$6.2 billion from South Korea over the same period.
The flows suggest that as investors consider a return to AI stocks amid doubts about companies’ spending payoffs, they might opt more for markets they consider less volatile and more diversified. Some investors view Taiwan as less likely to deliver the spectacular surges seen in South Korea but as offering more even-keeled returns and less dependent on leveraged trades.
Taiwanese “companies are very, very high quality,” Grantham Mayo Van Otterloo & Co portfolio manager Warren Chiang said. The market “will obviously move with the business of the world economy, but certainly it is not excessively risky from a fundamental sense.”
After steadily beating Taiwan as Asia’s best-performing market for the year, South Korea recently conceded that title, although both are up more than 50 percent.
Recent flows show a divergence that highlights how investors are considering multiple factors as they assess the two markets’ outlooks and potential.
South Korea’s Samsung Electronics Co and SK Hynix Inc dominate in flash memory chips that have been traditionally cyclical, while Taiwan’s broader presence in the tech hardware supply chain could work to its advantage. “Everything in your iPhone, every part comes from Taiwan,” Chiang said.
Analysts’ earnings estimates for TAIEX companies, on a 12-month forward basis, rose by 9.5 percent last month, while the same measure for the KOSPI was revised 7.4 percent higher, Bloomberg-compiled data showed. That is the first month in nearly a year when Taiwan’s revision moved ahead of South Korea’s.
Meanwhile, South Korea also faces the issue of leverage, particularly the market impact of single-stock leveraged exchange-traded funds.
“Korea trades with much heavier leverage and speculative positioning, so even a small wobble in expectations can trigger an outsized move without any meaningful deterioration in fundamentals,” Vantage Global Prime Pyt Ltd senior analyst Hebe Chen (陳碧菲) said.
With last month’s rout only days old, it is still too early to determine how firmly this week’s modest rebound in the region — if it proves sustainable — would shape investor preference.
Despite its volatility, which has eased in the past few days, the KOSPI continues to trade at lower valuations than the TAIEX and is at a record discount following the sell-off.
“Korea looks relatively attractive given where valuations sit, because Taiwan didn’t correct as much,” Aberdeen Asian Income Fund Ltd senior investment director Isaac Thong (董子維) said.
In the end, the key Asian tech hubs’ equity performance could ultimately depend on how the AI sector delivers — whether heavy research and development spending pays off and the supply chain’s momentum continues.
“The longer-term picture is the monetization of AI,” Benzimra said. “That is the long-term risk.”