While both Korea and Taiwan benefit from the AI boom, Korean large-caps have seen more explosive earnings growth. This is due to a key strategic difference: Korean memory makers have leveraged supply shortages to significantly increase prices, leading to earnings estimates multiplying 5-6x. In contrast, Taiwanese firms have shown more pricing discipline.

Contrary to her buy-and-hold reputation, Cathie Wood is actively managing risk by selling shares of top performers like Roku. She is reallocating that capital into out-of-favor Chinese tech companies like Alibaba and Baidu, signaling a tactical portfolio rotation despite geopolitical risks.

The powerful earnings growth story for North Asian markets like Korea and Taiwan is driven by the durable AI theme, not cyclical factors. Their role as essential suppliers of semiconductors for the AI supply chain provides a structural tailwind that should endure beyond the current geopolitical conflict, assuming a global recession is avoided.

Despite a massive positive shock from semiconductor exports, South Korea's currency (the won) has weakened. This is partly because retail investors are taking their profits and buying US tech stocks instead of reinvesting domestically, creating capital outflows that offset the strong current account surplus.

Fueled by AI enthusiasm, Taiwan's market now trades at a 32x cyclically adjusted P/E, approaching India's historically high valuation. A single company, TSMC, represents 13% of the benchmark and trades at 65x CAPE, creating significant concentration and valuation risk for the entire market.

Emerging Market investors have a "bittersweet" feeling about the North Asian equity boom. While performance is strong, the rally is driven by capital expenditure from US hyperscalers, not local dynamics. This dependency makes the success feel borrowed and harder to sell to global allocators as a unique, intrinsically-driven Asian growth narrative.

Fears that AI will render software and other tech industries obsolete are driving a significant capital shift. Investors are selling tech stocks and buying into sectors perceived as immune to AI disruption, such as energy, construction, and consumer staples. This rotation explains the recent underperformance of tech-heavy indices.

A disconnect exists where Korean stocks soar but the Won weakens. A key theory is that outflows are from long-term "old money" investors. These legacy positions were likely unhedged against currency risk. When these massive, appreciated positions are sold, the unhedged capital repatriation creates significant downward pressure on the Won, overriding positive export data.

The global stock market rally is largely an extension of the U.S. AI story. International markets are benefiting from demand for AI-related inputs (e.g., minerals from Latin America) and as global investors seek to diversify away from highly-valued U.S. tech stocks into other, relatively cheaper markets.