Asian equity markets may be entering a new phase of leadership rotation as a narrow, semiconductor-driven rally pushed valuation gaps to their widest levels in nearly two decades, according to a report by Société Générale's head of Asia equity strategy, Frank Benzimra. The July 10 report argues that investors are beginning to move away from South Korea and Taiwan, which have dominated regional gains this year, as concerns emerge about stretched valuations and the durability of the artificial intelligence investment boom. Asian equities have outperformed U.S. stocks by roughly 16% year-to-date, but the gains have been unusually concentrated, with Korea and Taiwan accounting for more than all of the region's returns and offsetting weakness in China and India. Recent market action suggests that concentration may be starting to unwind, with Korea falling more than 20% from recent highs and entering a bear market for the second time this year, while India has begun outperforming regional peers and Taiwan has started outperforming Korea. Foreign investor flows are reinforcing the trend, as capital has recently returned to India and other South Asian markets even as outflows have continued from Korea and Taiwan. Société Générale noted that price-to-book valuation dispersion across Asian markets has reached its highest level since 2007, a period that preceded major shifts in market leadership, and the bank recommends a long position in Taiwan relative to Korea, as well as favoring Japan's broader TOPIX index over the Nikkei 225.
Taiwan Semiconductor Manufacturing Co. Ltd.Article discusses rotation away from semiconductor-driven rally; TSMC is in Taiwan but not specifically mentioned; impact unclear.