AI Surge Elevates South Korea and Taiwan in Emerging Markets Index

AI Boom Reshapes Emerging Markets, Boosts South Korea and Taiwan to the Forefront

The global artificial intelligence (AI) surge has propelled South Korea and Taiwan to dominate the MSCI Emerging Markets Index, overtaking traditional heavyweights like China and India. Together, these two semiconductor powerhouses now account for over half of the index, a dramatic shift from just a year ago when China and India held a combined 50% share.

Taiwan and South Korea Lead AI-Driven Growth

Taiwan now commands 27% of the MSCI Emerging Markets Index, more than double India’s 11%, while South Korea holds nearly 24%, surpassing China by four percentage points despite the latter’s economy being nearly 10 times larger. This shift underscores the transformative impact of the AI revolution on global financial markets.

Both South Korea and Taiwan have emerged as key players in the AI-driven semiconductor industry, which is fueling an extraordinary rally in their stock markets. South Korean and Taiwanese equities have surged by 61% and 53%, respectively, so far this year. Taiwan’s economy, buoyed by AI-related exports, is forecast to grow nearly 10% in 2023, according to the country’s statistics agency.

South Korea, meanwhile, has witnessed a staggering 180% year-on-year increase in semiconductor exports during the first three weeks of this month alone. These developments highlight the central role of AI in driving productivity, cutting costs, and boosting corporate margins in emerging markets. “Unlike in developed markets, AI in [emerging markets] is not just a narrative. It is already embedded in the real economy,” said Carmignac, a leading investment manager.

Why This Matters

The rise of South Korea and Taiwan in the MSCI Emerging Markets Index reflects a broader shift in global economic power within the developing world. While China and India remain significant players, the AI-driven semiconductor boom has positioned South Korea and Taiwan as indispensable hubs for technological innovation and economic growth.

For investors, this trend underscores the importance of diversifying portfolios to include these emerging market leaders, even as concerns about over-reliance on a few dominant players in the semiconductor industry persist. The rapid gains also signal potential risks, as the fortunes of these markets are closely tied to the volatile tech sector.

As AI continues to reshape industries and economies, the dominance of South Korea and Taiwan in the emerging markets landscape is likely to endure, redefining the investment calculus for years to come.

Source: South China Morning Post