Investors are cutting back on their bets on Asian chipmakers despite a "blistering rally" that saw South Korean and Taiwanese stock markets nearly double and rise by 62% respectively in the first half of the year. This shift is primarily due to profit-taking, rebalancing portfolios, and a reassessment of valuation after the strong performance. TSMC, SK Hynix, and Samsung Electronics, key players in the semiconductor industry, collectively make up 29% of the MSCI Emerging Markets index, indicating significant concentration risk.
Foreign investors have significantly divested from Asian equities, pulling a net $137.36 billion from shares across South Korea, Taiwan, India, Indonesia, Thailand, Vietnam, and the Philippines in the first six months of 2026. This represents the fastest six-month outflow in LSEG data dating back to 2010. South Korea and Taiwan bore the brunt of these outflows, shedding $70.8 billion and $29.6 billion, respectively. In June alone, foreign investors sold $27.08 billion of regional equities, with South Korea contributing $12.63 billion and Taiwan $8 billion to that figure. Analysis from Bank of New York Mellon (BNY) shows that mutual funds sold $7.5 billion of South Korean equities, pension funds $4.35 billion, and hedge funds $1.87 billion.
Analysts suggest these withdrawals are not solely a reaction to risk, but also stem from currency hedging and benchmark rebalancing, where funds sell high-performing stocks to mitigate concentration risks in their portfolios. The exodus reflects investor questioning of whether the strongest phase of the AI-led rally has passed, despite continued strong demand for AI infrastructure. The volatility is making investors increasingly sensitive to negative news, contributing to fatigue and prompting capital outflow from the sector. The selling has pushed investors to seek out cheaper, undervalued markets in Southeast Asia and other sectors like defense and renewables for diversification.
