(Bloomberg) — Taiwanese stocks are gaining favor over South Korea’s on steadier earnings prospects, as the two AI-bellwether markets look to recover from July’s rout.
Foreign investors turned net buyers of Taiwan stocks last week, ending a six-week selling streak, data compiled by Bloomberg show. They have accumulated $1.7 billion so far this month, while net selling $6.2 billion from Korea over the same period.
The flows suggest that as investors consider a return to AI stocks amid doubts about companies’ spending payoffs, they may opt more for markets they consider less volatile and more diversified. Some investors view Taiwan as less likely to deliver the spectacular surges seen in Korea but as offering more even-keeled returns and less dependent on leveraged trades.
Taiwanese “companies are very, very high quality,” Warren Chiang, portfolio manager at Grantham Mayo Van Otterloo & Co. The market “will obviously move with the business of the world economy, but certainly it is not excessively risky from a fundamental sense.”
After steadily beating Taiwan as Asia’s best performing market for the year, Korea recently conceded that title, though both are up more than 50%.
Recent flows show a divergence that highlight how investors are considering multiple factors as they assess the two markets’ outlooks and potential.
Korea’s Samsung Electronics Co. and SK Hynix Inc. dominate in flash memory chips that have been traditionally cyclical, while Taiwan’s broader presence in the tech hardware supply chain may work to its advantage. “Everything in your iPhone, every part comes from Taiwan,” Chiang said.
Analysts’ earnings estimates for Taiex companies, on a 12-month forward basis, rose by 9.5% last month, while the same measure for the Kospi was revised 7.4% higher, according to Bloomberg-compiled data. That’s the first month in nearly a year when Taiwan’s revision moved ahead of Korea’s.
Taiwan’s tech sector is anchored by foundries like Taiwan Semiconductor Manufacturing Co., which exhibit less earnings cyclicality, Societe Generale equity strategist Frank Benzimra said.
Meanwhile, South Korea also faces the issue of leverage, particularly the market impact of single‑stock leveraged exchange-trade funds.
“Korea trades with much heavier leverage and speculative positioning, so even a small wobble in expectations can trigger an outsized move without any meaningful deterioration in fundamentals,” said Hebe Chen, senior market analyst at Vantage Global Prime.
With the July rout only days old, it’s still too early to determine how firmly this week’s modest rebound in the region — if it proves sustainable — will shape investor preference.
Despite its volatility, which as eased in recent days, the Kospi continues to trade at lower valuations than the Taiex and is now at a record discount following the sell‑off.
“Korea looks relatively attractive given where valuations sit, because Taiwan didn’t correct as much,” Isaac Thong, senior investment director and manager of Aberdeen Asian Income Fund.
In the end, the key Asian tech hubs’ equity performance may ultimately depend on how the AI sector delivers — whether heavy R&D spending pays off and the supply chain’s momentum continues.
“The longer term picture is the monetization of AI,” Societe Generale’s Benzimra said. “That is the long term risk.”
–With assistance from Abhishek Vishnoi and Youkyung Lee.
More stories like this are available on bloomberg.com
About The Author
