The crown has changed hands. Between July and September, the Taiwan Weighted Index (Taiex) crushed the South Korean KOSPI by a 23-point margin, the widest gap since the turn of the century. Taiwan's earnings upgrades have outpaced Korean peers for the first time since March 2025, signaling a structural shift in where institutional money is flowing. This isn't just a blip; it's a re-rating of the entire AI supply chain narrative.
The numbers tell a stark story of concentration risk. During the same quarter, Samsung Electronics and SK Hynix shares plunged 19% and 33% respectively after a six-quarter run. In contrast, TSMC shares rose 3%. The KOSPI's correction highlights the fragility of a market dominated by two memory chipmakers, while Taiwan's breadth—spanning design, packaging, networking, and servers—provided a cushion. M&G Investments' Vikas Pershad noted that Taiwan's earnings come from volume, making them "stickier," whereas Korea's gains have been price-driven, a dynamic that is now reversing.
Institutional positioning reflects this pivot. A Bank of America survey from last month shows nearly 40% of fund managers are overweight on Taiwan, compared to 25% for South Korea. The data is even more lopsided on forward expectations: 35% of managers see Taiwan as the next big AI beneficiary, while only 5% hold that view for Korea. The valuation gap is equally telling. The Taiex trades at 18 times one-year forward earnings, while the KOSPI sits at a depressed 5.5 times, a discount that may be too wide to ignore for long.
But the Korean camp isn't surrendering. Peter Lee of Citigroup argues that the market is underestimating HBM chip demand in 2027 and urges investors to buy Samsung and SK Hynix now. Societe Generale, however, maintains its preference for Taiwan, predicting that memory price appreciation will slow in coming quarters before normalizing in 2028. The debate centers on whether the memory upcycle has peaked or if the capex cycle for AI infrastructure will keep memory prices elevated longer than consensus expects.
Looking ahead, the broader participation metric favors Taiwan. More than 10% of Taiex constituents have doubled in value this year, compared to just 4.1% for the KOSPI and 5.7% for Japan's Nikkei 225. Investors should watch Q4 earnings for TSMC and Samsung to see if the volume-based growth in Taiwan can sustain its 72% YTD lead, or if the KOSPI's 5.5x multiple offers a contrarian entry point before the next leg of the AI cycle.