Taiwan is emerging as the stronger bet in the global AI trade race, with the Taiex Index beating the Kospi by about 23 percentage points last quarter - the widest margin since the turn of the century. According to Business Standard, about 40% of the fund managers surveyed by Bank of America Corp. last month said they were overweight Taiwan, versus 25% for Korea. Taiwan's benchmark is currently the top performer among more than 90 equity indexes tracked by Bloomberg, up 72% in 2026, while the Kospi ranks second with gains of about 63%. The distinction lies in Taiwan's deeper linkages across the AI supply chain, offering exposure across chip design, manufacturing, packaging, networking, and servers, providing more ways to benefit as AI spending broadens. As M&G Investments portfolio manager Vikas Pershad noted, "The distinction for us is not simply the amount of AI exposure, but the nature of the earnings supporting it. Taiwan offers a broader and deeper opportunity set. Its earnings come from volume and that makes its earnings upgrades broader and stickier. Korea's earnings, in the near-term, are coming from price."
Northeast Asia is experiencing a significant current account surplus surge, with the reading reaching a record high of $538 billion based on the 12-month sum to July 2026. According to reports from Nomura Global Markets Research, this divergence is directly attributed to the artificial intelligence boom that is reshaping regional trade patterns. The current account surplus indicates that countries in this region are exporting more than they import, driven primarily by their dominant position in the higher-value segments of the technology supply chain. The ongoing AI revolution is creating a mathematical architecture that keeps escaping the domain it was originally designed for, finding applications in language, code, proteins, images, and molecules alike, further amplifying the regional trade divide.
In contrast, Southeast Asian nations are experiencing increased current account deficits as a result of the AI boom's uneven impact across the region. As reported by Nomura Global Markets Research, Taiwan and Korea dominate higher-value upstream segments of the tech supply chain, enabling them to capture significant export upside from surging demand for AI servers and memory chips. Meanwhile, parts of Southeast Asia remain more concentrated in lower-value assembly and downstream manufacturing, which benefit less from the AI boom. Additionally, data centre investment is proving more import-intensive, leading to persistent electronics trade deficits in Thailand. The quality and speed of thinking now depends on access to compute and the best models, creating a token inequality where those with more tokens innovate faster and compound their lead, while those behind grow more vulnerable each year.
The valuation gap reflects different market expectations for the AI cycle's trajectory. As reported by Business Standard, the Taiex is trading at about 18 times its one-year forward estimated earnings, while the Kospi trades at around 5.5 times, reflecting concern that the memory cycle may be approaching a peak. In the Bank of America survey, 35% of respondents chose Taiwan as the market that would benefit the most from the next phase of the AI cycle, compared to just 5% picking Korea. However, the counter view suggests AI-related demand will exacerbate semiconductor supply shortages, keeping prices for high-bandwidth memory chips supported. Societe Generale SA is "keeping a preference for Taiwan over Korean equities, given the diverging earnings growth trajectories," with memory price appreciation expected to slow over coming quarters before normalizing in 2028. Taiwan's gains have been broader this year compared to its peers, as more than 10% of the index constituents have doubled or more in value, compared to just 4.1% for the KOSPI and 5.7% for the Nikkei 225 in Japan.
The Taiex's outperformance comes as Korean market leaders face significant headwinds. According to Business Standard, shares of Kospi heavyweights Samsung and SK Hynix plunged between 19% and 33% in the three months ended September, following a six-quarter winning streak as surging memory-chip prices drove blockbuster earnings. Earnings estimates for the Taiex rose around 19% in the September quarter, compared with an increase of about 15% for the Kospi, as reported by Bloomberg. Citigroup Inc. managing director Peter Lee suggested that investors should start buying shares of firms like Samsung and SK Hynix as the market is underestimating how much HBM chips will be needed in 2027. Meanwhile, Societe Generale noted that Korea's July deleveraging has broadened into a wider retreat from the market, with the firm expecting memory price appreciation to slow before normalizing in 2028. Samsung's preliminary earnings on Thursday will test whether it can convince investors of its long-term outlook.
