{"id":190592,"date":"2024-12-07T23:10:10","date_gmt":"2024-12-07T23:10:10","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/12\/07\/trillion-dollar-gap-in-taiwan-korea-stock-fortunes-times-of-india\/"},"modified":"2024-12-07T23:10:10","modified_gmt":"2024-12-07T23:10:10","slug":"trillion-dollar-gap-in-taiwan-korea-stock-fortunes-times-of-india","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/12\/07\/trillion-dollar-gap-in-taiwan-korea-stock-fortunes-times-of-india\/","title":{"rendered":"Trillion-dollar gap in Taiwan, Korea stock fortunes – Times of India"},"content":{"rendered":"
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As South Korea descends into political chaos, its equity market risks falling further behind major tech rival Taiwan, which is basking in the glory of the global artificial intelligence boom.
A near 30% surge in Taiwan\u2019s stock benchmark this year, set to be the best since 2009, has already helped spur a historic divergence between Asia\u2019s two tech-dominated markets. The island\u2019s market capitalization now exceeds South Korea\u2019s by about $950 billion as the world\u2019s AI frontrunners from Nvidia Corp. and Microsoft Corp. to OpenAI all increasingly turn to Taiwanese firms for supply.
Looking ahead to next year, while both export-oriented economies face the risk of higher tariffs by incoming US President Donald Trump, many investors see Taiwan as less vulnerable given the reliance of American firms on its technology as well as its relatively better economic prospects.
Such optimism, and a recent pickup in inflows into local stocks, also augur well for the Taiwanese dollar, which has fared better than the Korean won in 2024.
\u201cThe structural theme of AI is likely to only get extended further, and this means we could see another year of Taiwan outperformance,\u201d said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. \u201cThe Korea discount may linger for longer given the recent political debacle, and the corporate governance reforms will have to be prioritized to get any closer to erasing this discount.\u201d
South Korean President Yoon Suk Yeol is fighting for his political life after his attempt to break an impasse in parliament by briefly imposing martial law backfired. The turmoil has cast a pall over the nation\u2019s outlook and it also may impact the Corporate Value-Up program much touted by Yoon as a way to boost shareholder returns and eradicate the so-called Korea Discount, a term referring to the long depressed valuations of the country\u2019s equities.
Down more than 8% this year, the Kospi is one of the world\u2019s worst-performing major equity indexes. Its underperformance versus Taiwan\u2019s Taiex has deepened further this month.
TSMC rules<\/span>
Taiwan\u2019s equity-market outperformance has a lot to do with this year\u2019s 80% surge in the shares of Taiwan Semiconductor Manufacturing Co., the world\u2019s top advanced chipmaker that accounts for 37% of the benchmark\u2019s weighting. The company is the major supplier of Nvidia and Apple Inc.\u2019s most advanced chips.
In contrast, shares of Samsung Electronics Co. \u2014 South Korea\u2019s most-valued company \u2014 have been the biggest drag on its local market. Samsung\u2019s stock has slumped 31% in Seoul this year on concerns that the firm is missing out on the AI boom due to slow progress on technological breakthroughs and lingering management woes.
Overall, Taiwan\u2019s exposure to AI goes far beyond TSMC: over 40 AI-related firms constitute about 73% of MSCI Taiwan\u2019s index weighting, according to Goldman Sachs Group analysts. At 33%, Korea is a distant second in Asia and features SK Hynix Inc. and Samsung Electronics only.
Analysts\u2019 average earnings per share estimate for MSCI Taiwan has risen more than 33% this year to a record high, while that for MSCI Korea has declined 5% since a peak in August, Bloomberg compiled data shows.
\u201cIf you think of Nvidia\u2019s AI server market and so on, Taiwan is heavily involved in that value chain,\u201d said Yan Taw Boon, portfolio manager at Neuberger Berman. \u201cConversely, Korea has not performed as strongly as they have very little involvement in this new booming environment.\u201d
Trump tariffs<\/span>
While the higher tariffs threatened by Trump are a universal challenge, there are reasons some investors believe that Taiwan\u2019s treatment may be more nuanced and less punishing.
\u201cOne will recall that many Taiwanese exports were exempt from tariffs last time around as they were key components of US tech supply chains,\u201d JPMorgan Chase & Co. analysts including Rajiv Batra wrote in a note. \u201cThis time is likely to be the same with TSMC seen as a major part of the Global AI trade.\u201d
The Wall Street bank sees Taiwan relatively better positioned than Korea in a trade war with the US.
Another buffer for Taiwanese equities is the growing presence of local investors, especially when the global investment climate turns more capricious.
\u201cTaiwan retail investors\u2019 home bias and the still interesting AI ramp-up theme should continue to drive participation in the stock market,\u201d said Vivian Pai, fund manager at Fidelity International. Their increased awareness of long-term investing can help form strong consistent inflows into local stocks, she added.
The Taiwan dollar has weakened about 5% against the US currency this year while the Korean won has fallen around 9%.
\u201cBoth Taiwan and Korea are exposed to tariffs but Taiwan\u2019s underlying economic fundamentals are more solid,\u201d said Eddie Cheung, a strategist at Credit Agricole CIB. \u201cThis should persist in 2025.\u201d<\/div>\n