Global Equity Markets Shift as AI Investment Drives Capital Toward Taiwan and South Korea

The global artificial intelligence (AI) boom is fundamentally reshaping the landscape of international equity markets. As investors prioritize exposure to the semiconductor and AI supply chains, capital is flowing away from traditional emerging market leaders, such as India, and into technology-heavy markets like Taiwan and South Korea.

The AI-Driven Market Realignment

Recent market data highlights a significant shift in global rankings. Taiwan has overtaken India to secure its position as the world’s fifth-largest stock market. This surge is largely attributed to the massive scale of the AI trade, which has seen trillions of dollars in capital expenditure directed toward data centers, energy infrastructure, and high-end memory chips.

Nvidia Corp, the centerpiece of the current AI rally, has reached a valuation of $5.2 trillion, a figure that exceeds the combined market capitalization of all listed Indian companies. This disparity underscores the heavy concentration of wealth in companies positioned at the forefront of the AI revolution.

Performance Metrics by Region

• Taiwan: Market capitalization has surged 50% this year to nearly $5 trillion, driven by the strong performance of technology bellwethers like Taiwan Semiconductor Manufacturing Company (TSMC).
• South Korea: Benefiting from the rally in semiconductor stocks and AI-linked hardware, the market has seen its capitalization jump nearly 70% this year to $4.5 trillion.
• India: The market has slipped to sixth place globally, with capitalization declining 7% year-to-date to $4.92 trillion, accompanied by over $20 billion in foreign investor outflows.

Why Investors are Rotating Capital

The movement of capital is not merely a reflection of momentum, but also of strategic positioning. According to a note from Elara Capital, foreign investment flows have rotated toward South Korea and Taiwan since April 2025 to capture the AI trade. Conversely, India is increasingly perceived as a laggard due to its lack of significant representation in the global semiconductor and AI supply chain.

Pratik Gupta, chief executive officer and co-head of Kotak Institutional Equities, noted that India’s status as neither a “pure AI play” nor a “high-growth outlier” reduces its relative appeal. Institutional investors have pointed to structural hurdles in the Indian market, such as the imposition of capital gains taxes and currency volatility linked to an elevated current account deficit, as factors influencing the decision to exit.

Concentration Risks and Market Outlook

While the AI trade has delivered significant returns, some market experts caution that the current rally is becoming increasingly crowded and concentrated. In South Korea, Samsung Electronics and SK Hynix account for nearly half of the total market capitalization. Similarly, TSMC represents almost 40% of Taiwan’s total market value.

In comparison, the Indian market remains significantly more diversified, with its most valuable company, Reliance Industries, accounting for only about 4% of the total market capitalization. Despite these concentration risks in technology-heavy markets, the immediate priority for global investors appears to be capturing the AI-driven growth cycle. As long as momentum in AI-linked stocks remains robust, market observers expect that capital will continue to favor the semiconductor hubs of East Asia over more diversified but slower-growing emerging markets.

Key Takeaways

• Shift in Power: Taiwan has surpassed India to become the world’s fifth-largest stock market.
• Tech Dominance: AI-linked companies are driving massive market gains, with Nvidia’s valuation now exceeding the total market cap of all Indian listed companies.
• Investor Sentiment: Foreign capital is rotating toward South Korea and Taiwan to gain direct exposure to the AI supply chain.
• Structural Challenges: India faces headwinds due to a lack of AI supply chain integration and specific tax policies that deter foreign institutional investment.