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.
Paradoxically, foreign investors are large net sellers in booming Korean and Taiwanese markets. This isn't a bearish call on the AI theme. Rather, for long-only Emerging Market funds, the outsized performance of a few large-cap tech stocks has caused these positions to breach portfolio concentration and risk management limits, forcing them to trim holdings.
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.
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.