Taiwan has overtaken China as the market with the top weighting in a key emerging-markets stock index for the first time in about two decades, driven by a rally in artificial intelligence (AI) shares.
The Asian chipmaking hub accounts for 21.06 percent of the MSCI Emerging Markets Index, squeaking past China’s 20.93 percent at the end of last month. It marks the first time Taiwan has surpassed China since July 2007, according to data compiled by Bloomberg. MSCI has not replied to a request for comment.
Taiwan’s rise highlights the popularity of AI-related trades and the importance of local companies in the industry, in contrast with China’s two-speed economy being weighed down by weak consumer demand. Taiwan Semiconductor Manufacturing Co is the single biggest weighted stock in the EM gauge, and has climbed about 13 percent this year.
Photo: Bloomberg
It “shows how dominant the AI theme has become,” said Joshua Crabb, head of Asia-Pacific equities at asset manager Robeco. “It underscores increasing interest in the laggard plays in Asia AI given better valuations.”
MSCI’s Taiwan Index rose more than 11 percent in January, compared with a 5 percent gain in the MSCI China benchmark.
While Chinese stocks remain cheaper than Taiwan’s in earnings-based valuations, Taiwan’s MSCI index is expected to deliver earnings growth of 37 percent in the next 12 months, compared with 15 percent for the China gauge, according to data compiled by Bloomberg.
Citigroup Inc strategists upgraded Taiwan equities to overweight from neutral in December, citing their exposure to global AI supply chains and a more favorable earnings outlook. By contrast, the bank downgraded China to neutral from overweight on weaker earnings and a subdued macroeconomic outlook, strategists — including David Groman — wrote in a Dec. 22 report.
Another Asian semiconductor hub, South Korea, has moved past India to become the third-largest market by weighting in the emerging-markets benchmark. Surging memory chip prices have propelled shares of Korean chipmaker giants Samsung Electronics Co and SK Hynix Inc to new highs.
While India’s structural growth story continues to attract investors, its limited exposure to high-end technology has constrained its upside in an AI-driven rally.
“While this enhances Taiwan’s strategic relevance in global portfolios, it also heightens exposure to potential downturns in the global technology or AI cycle,” said Gary Tan, a fund manager at Allspring Global Investments.
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