Taiwan has recently emerged as the world’s fifth-largest stock market, overtaking India, thanks primarily to the remarkable performance of Taiwan Semiconductor Manufacturing Co. (TSMC). As of Monday’s market close, Taiwan’s stock market capitalization reached $4.95 trillion, surpassing India’s $4.92 trillion by approximately $30 billion.
The surge in Taiwan’s stock market has largely been propelled by TSMC, the world’s largest contract chipmaker, whose shares have surged roughly 46% this year. This impressive growth has contributed to a more than 50% increase in Taiwan’s Taiex index. TSMC’s significant presence in the market is underscored by the fact that it accounts for around 42% of the Taiex’s total market capitalization, indicating a considerable concentration of market value within a single company. However, on Monday, TSMC saw a decline of 1.7%, which was mirrored by a 0.3% drop in the Taiex index, albeit maintaining a generally strong yearly performance.
Taiwanese financial regulators have taken steps to facilitate further investments into TSMC. Last month, new regulations were implemented allowing Taiwan stock funds to hold up to 25% of their net assets in a single stock when that stock makes up more than 10% of the Taiwan Stock Exchange’s total market value. Previously, the limit was set at 10%. TSMC currently stands as the sole company meeting this threshold, with JPMorgan Chase estimating that this regulatory change could usher in over $6 billion in additional inflows to TSMC.
In contrast, India’s stock market has faced headwinds, experiencing record outflows of foreign capital. So far this year, global funds have divested around $24 billion from Indian shares, reallocating funds toward Taiwan and South Korea, which are seen as benefiting from the increasing demand for artificial intelligence technologies. India’s benchmark stock index has declined about 8% this year and is poised to record its first annual drop in a decade. Additionally, the country’s representation in the MSCI Emerging Markets Index has decreased from 19% to 12%.
The market dynamics are notable given that India’s economy is substantially larger than Taiwan’s, with the International Monetary Fund estimating India’s GDP at approximately $4.15 trillion—over four times the size of Taiwan’s $977 billion. This positions Taiwan as a remarkable case where a smaller economy surpasses a larger one in stock market valuation.
Experts attribute this significant shift to the ongoing AI investment cycle. Franklin Templeton fund manager Yi Ping Liao remarked that Taiwan’s growth in market capitalization is a clear indication of its strong technological hardware sector, which is central to the current AI investment boom. Markets with less exposure to technology hardware have increasingly been overshadowed by Taiwan and South Korea, which are benefiting from this trend.
Despite these developments, some investors still see potential in India. Alison Shimada, a portfolio manager at Allspring Global Investments, noted that while the Indian market has been overlooked for nearly two years, the transformation of household savings into financial assets remains a noteworthy development. She emphasizes the need for selectivity in what is perceived as an expensive market, indicating that there are still opportunities to explore.
This evolving landscape underscores the dynamic nature of global investment and the shifting preferences of investors, particularly in the face of technological advancements and changing market conditions.
