KOSPI Lags Taiwan Amid Foreign Outflows

Foreign investors are pouring capital into Taiwanese stocks while withdrawing from South Korean equities, leading to a widening gap between the two markets, according to recent data. The Taiwan Capitalization Weighted Stock Index has surged 54% this year, surpassing the KOSPI's 52% gain for the first time. This shift is attributed to foreign investors' confidence in Taiwan's growth potential within the AI industry, as opposed to South Korea's reliance on cyclical memory semiconductor companies, which are more susceptible to economic fluctuations.

Taiwanese companies are perceived as having stronger earnings stability, with a more diversified presence in the AI hardware supply chain, including semiconductor manufacturing, electronic components, and servers, led by TSMC, the world's largest foundry company. The diverging fortunes are also influenced by the industrial compositions of the markets, with South Korea's heavy dependence on memory semiconductors being seen as a vulnerability.

Additionally, South Korea's higher leverage and speculative positions among foreign investors contribute to increased market volatility. Despite the recent decline, some believe South Korean equities could be more attractive from a valuation standpoint due to their relative lack of correction. However, the ultimate direction of the stock market's longer-term performance hinges on whether AI investments can be monetized through actual returns.

Domestic semiconductor companies are considering measures such as share buybacks and higher dividends to bolster stock prices amid the downturn, with SK hynix planning to unveil a detailed plan in the third quarter.