Global hedge funds achieved a decade-high weekly buying of South Korean, Japanese and Taiwanese stocks last week, according to a Morgan Stanley client note. The surge, driven by AI beneficiaries and the region's dominance in the tech supply chain, saw net exposure to these markets hit its highest point since 2010. As reported by Morgan Stanley, the week ending May 7 marked the heaviest week of buying in more than a decade in notional terms, with buying orders focused primarily on semiconductors and hardware. According to Bloomberg, South Korea's Kospi index has risen sharply this year, making it one of the best-performing equity benchmarks globally, while Taiwan's stock market has also posted strong gains driven by AI boom optimism. However, recent analysis from Nikkei warns that the nearly 80% rise in the Nikkei 225, S&P 500, and Korea's KOSPI compared to the end of last year is driven by overheated investment in artificial intelligence, with experts raising concerns about underlying market instability.
Asia-linked exchange-traded funds have significantly outperformed major U.S. benchmarks, with the iShares MSCI South Korea ETF (EWY) surging more than 239% and the iShares MSCI Taiwan ETF (EWT) gaining more than 96% in the last 12 months. This compares favorably to the SPDR S&P 500 ETF (SPY) gaining 32% and the Invesco QQQ Trust (QQQ) increasing 46% in the same period. As reported by multiple sources, South Korea's KOSPI hit a fresh record on Monday, surging more than 4% to 7,899.32, while the Taiwan Stock Exchange Weighted Index (TAIEX) closed above 42,000 for the first time last week. According to industry analysis, collectively, the two markets have added +$4.6 trillion in market value over the last 12 months, driven by AI-related stocks. However, Nikkei reports that between February 27—the day before the U.S. and Israel attacked Iran—and May 7, the Nikkei Index rose an average of 7%, whereas the TOPIX Index, which reflects the entire market based on the Tokyo Stock Exchange's total market capitalization, actually fell by 2% over the same period, highlighting the divergent performance within Japan's equity markets.
Goldman Sachs analysts warn that Indian stocks now offer a less attractive risk-reward profile compared to their North Asian counterparts due to high valuations and AI-related concerns. According to Goldman, Indian stocks offer a weaker risk-reward vs. Asian peers due to high valuations relative to expected growth, and investors are concerned about the impact of artificial intelligence (AI). The firm suggests that for investors who can handle short-term market swings, focusing on companies with low foreign ownership could perform well when global investor sentiment towards emerging markets, including India, improves. Goldman Sachs reiterated a positive view on 12 specific companies: Hindustan Unilever, Larsen & Toubro, Bajaj Auto, Bank of Baroda, Trent, Solar Industries India, Siemens, Bajaj Holdings & Investment, Bosch, One 97 Communications, and MRF. The firm highlighted their low earnings sensitivity to oil price shocks as a key advantage.
Foreign institutional investors have sold $22 billion in Indian equities year-to-date, surpassing the 2025 annual record of $19 billion and marking the biggest sell-off in over 2.5 decades. On a rolling 250-day basis, current selling of $30 billion is close to 2022 and 2025 lows. Since its peak in September 2024, foreign investors have offloaded a record $53 billion, representing 0.9% of market capitalization. This outflow exceeds the selling during the 2009 Global Financial Crisis but remains below the 1% seen during the 2022 global tightening cycle. Foreign ownership in Indian equities fell to a 14-year low in the first quarter of 2026, with FIIs now holding about 16% of Indian equities while DIIs hold nearly 17%, according to Q1-CY26 filings. Foreign share decreased most in large-cap stocks, hitting a 10-year low, while sectors like banks, real estate, and consumer retail & services saw the biggest quarterly drops in foreign ownership.
Goldman Sachs economists led by Andrew Tilton predict that Korea's AI-related exports could triple to almost 30% of economic output this year — from less than 10% over the past decade, while Taiwan's could rise further in excess of 30% of GDP. According to Goldman, the tech-export surge pushing what they call the "AI-driven super surplus" in current accounts above 10% of GDP in Korea in 2026 and to over 20% of GDP in Taiwan. The economists note that non-tech exports are likely to remain subdued amid regional oversupply and the energy shock confronting the region, with Korea's surplus being recycled mainly into overseas equities and Taiwan's into FX deposits. As reported by Bloomberg, Taiwan's economy grew at its fastest pace since 1987 in the first quarter of 2026, while South Korean exports have been surging due to higher shipments of semiconductors.
