Asia's best-performing markets in the first half all sat close to the AI supply chain, but cracks in the AI trade are now whiplashing tech-heavy indexes. Analysts warn that the concentration behind those gains raises the risk of sharper swings in the second half.
A handful of chip stocks carried Asia's biggest equity rallies through the first half of the year, and the same concentration now leaves those markets exposed. South Korea, Taiwan and Japan finished as the region's top three performers, clear beneficiaries of demand for the components that power AI, even as fears grew that an oil shock from the Iran war could hit energy-importing economies.
Cracks are now appearing in that trade. Doubts about the profitability and sustainability of the AI buildout have crept in, whiplashing tech-heavy indexes as investors start demanding proof that the sums poured into AI will produce real profits and productivity gains.
A market divided by the AI supply chain
The split is stark. According to Saxo chief investment strategist Charu Chanana, market performance has increasingly depended on whether a market sits close to the AI supply chain. Only a handful of names are driving the bulk of gains in South Korea and Taiwan: memory makers Samsung Electronics and SK Hynix, alongside contract chip manufacturer TSMC.
Those three are the only Asian companies in the $1 trillion club, all with close ties to AI chip maker Nvidia. But heavy ownership makes them vulnerable to profit-taking, and their swings ripple through entire indexes. Samsung and SK Hynix together make up around half of the Kospi's total weighting, and slumps in the pair have triggered multiple trading halts from authorities trying to curb volatility.
Record highs, but concentration raises the risk
Even with volatility rising, the three markets have posted multiple record highs. The Kospi more than doubled its value over the first half, while the Nikkei rose 39% and the Taiex jumped 59%.
That concentration is the worry. According to CGS International head of research Angela Cheng: "the sheer concentration of investor exposure increases the risk of sharper swings" even while fundamentals remain supportive.
China's uneven picture and where money goes next
The divide runs through China's onshore markets too. AI enablers such as optical module makers Zhongji Innolight and Eoptolink Technology sent the ChiNext Index 36% higher, while the Shanghai Composite grew a mere 3.2%. Hong Kong lagged further, with its Hang Seng Tech Index shedding 19% in the first six months as investors pulled money out of Chinese internet stocks.
Analysts still see catch-up opportunities across the region. Morningstar's Lorraine Tan sees the outlook as challenging and probably still volatile, and with the tech sector largely fully valued, Tan said investors could go to other sectors with more reasonable upside, such as healthcare. According to Chanana, the next leg could be built on AI efficiency winners — the firms that can cut AI costs or broaden adoption.
Source: MarketScreener
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