Data compiled by Bloomberg shows Taiwan’s market capitalization climbed to $4.95 trillion as of Monday, while India’s value dropped to $4.92 trillion. Driven by a 49% rally this year in Taiwan Semiconductor Manufacturing Co. (TSMC), Taiwan now sits behind only the US, mainland China, Japan, and Hong Kong. Meanwhile, India’s key gauge is down 8%, heading for its first annual drop after a decade of gains, and its weight in the MSCI Emerging Markets index has collapsed from 19% last year to about 12%.
“Taiwan’s rising market capitalization is fundamentally a reflection of its heavy concentration in tech hardware, which is currently at the center of the AI investment cycle,” Yi Ping Liao, a fund manager at Franklin Templeton, was quoted as saying by Bloomberg. “Markets with limited exposure to tech hardware are increasingly being overshadowed by tech hardware–heavy markets such as Taiwan and Korea.”
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The AI Supercycle and Its Winners
Taiwan’s ascent is, in large part, the story of one company. Taiwan Semiconductor Manufacturing Co. now accounts for about 42% of the benchmark index and its shares have rallied 49% this year as its semiconductors have captured a dominant position in the AI supply chain. New regulations are further cementing TSMC’s gravitational pull: Taiwan’s financial regulator last month raised the limit domestic funds can hold in a single stock to 25% of net assets, up from 10%, for listed companies whose index weighting exceeds 10%. Currently, only TSMC qualifies. JPMorgan Chase & Co. estimates the regulatory change could lure more than $6 billion of additional inflows into Taiwan.
South Korea is rapidly emerging as the next major beneficiary. Nomura has dramatically raised its 2026 KOSPI target to 10,000–11,000, up from a prior range of 7,500–8,000, citing what it calls a “commodity memory and high-bandwidth memory supercycle.” The brokerage expects AI-driven earnings to deliver 200% year-on-year growth for Korean corporates in 2026, followed by 29% in 2027. Korea’s exports from January through April 2026 hit a historical high of $306 billion, led by semiconductors.
Nomura sees the possibility of a self-reinforcing cycle taking hold in Korea: AI-driven export surpluses feeding into higher household incomes, stronger domestic consumption, potential won appreciation, and improved fiscal capacity — a virtuous loop that could sustain returns well beyond the current cycle.
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India’s Structural Disadvantage
Against this backdrop, India’s position looks increasingly uncomfortable. Kotak Securities’ Sanjeev Prasad puts it plainly, flagging India’s “negative” exposure to the AI and semiconductor cycle, which, he warns, “may continue for another one to three years” as a primary reason foreign portfolio investors will stay away. Weak relative earnings growth in FY2027 and negative exposure to commodity cycles, particularly crude oil and natural gas, compound the problem. “The continued large FPI outflows from Indian equity markets reflect the steady deterioration of relative returns amid continued compression of relative earnings growth expectations,” Prasad said.
Elara Securities echoes the concern, pointing to the same trio of headwinds — earnings quality, AI-cycle exclusion, and commodity sensitivity — as structural rather than cyclical.
India’s weight in the MSCI emerging markets index has already fallen sharply, to about 12% from 19% last year, a retreat that reflects both the market’s underperformance and the reallocation of global capital toward AI-linked economies.
Domestically, the backdrop is equally challenging. Indian stocks have been hit by elevated valuations, a weakening rupee, surging energy costs that have stoked inflation concerns, and slowing corporate earnings growth, none of which is likely to attract the fast money now flooding into semiconductor-heavy markets.