AI-chip fever is propelling emerging Asian markets to heights not seen since the aftermath of the global financial crisis. MSCI’s emerging-markets Asia index, which tracks large and mid-sized companies across developing Asian markets, is on pace for a 30.4% gain in the April-June quarter—its best performance since 2009.
On the latest trading day, the index rose 1.8%, with Taiwan jumping more than 3% and South Korea also climbing. The standout was Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, which gained 3.2%.
What’s Driving the Rally?
The surge is almost entirely tied to the artificial intelligence boom. Investors are piling into companies that make the chips and memory components essential for AI servers and data centers. TSMC, which manufactures chips for Nvidia and AMD, is the biggest beneficiary. South Korean memory-chip makers like Samsung and SK Hynix are also riding the wave.
However, as Reuters noted, the rally is narrow: a handful of chip names are doing most of the heavy lifting. That means the broader index’s gains are not broadly shared across sectors or countries. MSCI EM Asia is “cap-weighted,” so the largest companies—like TSMC—have an outsized impact on the index’s performance.
Context: A Historic Quarter
A 30.4% quarterly gain is rare. The last time emerging Asian markets saw such a surge was in 2009, when markets rebounded from the depths of the financial crisis. Today’s rally is driven by a different force: the AI revolution, which has turned chipmakers into the new market darlings.
Taiwan’s factory output growth has slowed in May despite the AI-driven chip boom, suggesting that the broader economy is not keeping pace with the tech sector. That divergence is a key risk for investors who buy the index as a whole.
What It Means for Investors
For everyday investors, this rally highlights both the power and the peril of concentrated market moves. If you own an emerging-markets Asia ETF, you are heavily exposed to a small group of AI-chip stocks. That can be great when those stocks are rising, but it also means the index could fall hard if AI demand cools or if chip prices drop.
Investors should also watch for signs of overheating. The AI Chip Rally Drives Emerging Asia to Best Quarter Since 2009, but history shows that narrow rallies can reverse quickly. Meanwhile, the Taiwan's Factory Output Growth Slows in May Despite AI-Driven Chip Boom is a reminder that the broader economy may not be as strong as the stock market suggests.
For those looking beyond chips, other sectors in emerging Asia—like Chinese automakers capturing nearly a quarter of Europe’s hybrid car market—offer diversification, but they are not driving the current rally.
What’s Next?
Investors will be watching for earnings reports from TSMC and other chip companies to see if the AI demand is translating into sustainable profit growth. They will also monitor any signs of regulatory changes or trade tensions that could disrupt the supply chain.
For now, the AI chip trade remains the dominant force in emerging Asian markets. But as the quarter ends, the question is whether the rally can broaden—or whether it will remain a story of a few winners carrying the entire index.
