Divergence Between Taiwan And Korea Fairness – The International Development Bellwethers?

By Belle Chang

Korea and Taiwan are historically typically considered as bellwethers for world commerce outlook, given their export-oriented traits and their important roles within the world tech provide chain. Amongst APAC fairness markets, Taiwan and Korea are the markets with the heaviest weights in Know-how.

Korea’s and Taiwan’s fairness markets traditionally moved intently collectively. Nevertheless, prior to now one 12 months, Taiwan has outperformed Korea in fairness considerably. Why are they behaving in a different way this time?

• The divergence between Tech and non-Tech sectors is one main rationalization. FTSE Taiwan’s 70%+ weight in Tech is much more concentrated than FTSE Korea’s 50% weights in Tech plus Telecom. Non-tech sectors akin to Industrials and Fundamental Supplies had been main draggers for Korea.
• Export knowledge present an analogous development: Though Korea’s semi exports noticed a major restoration, total exports have been dragged by non-tech sectors akin to autos and petrochemical merchandise.
• Inside Tech, Taiwan is extra concentrated in semiconductors and {hardware} provide chain which is a bigger beneficiary from the AI-driven demand. Korea has the next weight in client electronics and software program.

Given the explosive AI-driven tech upcycle since 2023, the tech industries within the two economies have benefited in consequence. Export development recovered meaningfully – turning from adverse to constructive – for each Korea and Taiwan. Nonetheless, within the fairness area, the 2 markets diverged. Previously twelve months, FTSE Taiwan noticed a complete return of 40%, however solely 10% for FTSE Korea. To elucidate the divergence, we talk about three factors in beneath:

Determine 1: FTSE Taiwan Vs FTSE Korea Index Complete Return (in USD Phrases)

1 – FTSE Taiwan is far more concentrated in Tech than FTSE Korea. Korea Tech rally was partially offset by non-Tech industries, e.g. Fundamental Supplies and Industrials

Know-how (Tech) accounted for 75.5% of the load within the FTSE Taiwan index. Tech and Telecommunications, which incorporates Samsung Electronics (OTCPK:SSNLF) (33.9%), collectively accounted for 49.2% of FTSE Korea. On this notice, we embody Korea Telecom as a part of the dialogue for Tech, on condition that Samsung Electronics is an enormous world participant of client electronics and semiconductors, and it was solely re-categorized from Tech to Telecom in Jun 2023.

Determine 2: FTSE Taiwan Vs FTSE Korea Trade Weights

Previously one 12 months, FTSE Taiwan noticed a complete return of 40% with Tech up 89%. Taiwan’s tech corporations have benefited from the AI increase, given its important place within the world AI provide chain.

Alternatively, FTSE Korea elevated solely 10% regardless of a 38% improve in Tech, which was primarily pushed by explosive demand for AI-related reminiscence chips. Telecom was up solely 9%, as Samsung Electronics was comparatively late within the competitors of HBM (Excessive Bandwidth Reminiscence) chips, a important enabler for superior AI growth. Fundamental Supplies (-29%) and Industrials (-15%) had been the primary detractors, on condition that these industries are typically extra correlated to the worldwide financial cycle.

Determine 3: FTSE Korea Index Complete Return By Trade (in USD Phrases)

Determine 4: Previous 12m Complete Return Contribution – FTSE Taiwan Vs FTSE Korea

2 – Export developments diverged too: Korea’s total exports have been dragged by non-tech sectors akin to autos and petrochemical merchandise.

Determine 5: Taiwan And Korea Export Development – Complete Vs Tech Product Exports

Non-Tech industries had been the primary draggers for Korea equites. The development was additionally evident in export knowledge. Korea’s tech merchandise noticed a robust upward momentum throughout semi chips, show panels, mobiles and PCs. The principle Korea reminiscence chipmaker has commented that its superior chips are already absolutely booked for 2024 and virtually bought out for 2025.

As for non-tech merchandise, the expansion developments keep comparatively flat. Korean autos witnessed robust export development (particularly to US) in 2023 given comparatively engaging model worth propositions and pricing particularly within the EV areas, however the momentum has slowed in face of China EV competitions. Petro and petrochemical export development turned constructive this 12 months, partially pushed by greater commodity costs. Nevertheless, it has been tough for the industries to see significant restoration but, given a weaker world development outlook and uncertainty round China restoration.

Determine 6: Korea Export Development – Tech Vs Non-tech Product

Alternatively, the correlation between complete exports and tech product exports in Taiwan remained excessive. Each semi and non-semi tech merchandise remained resilient given explosive AI demand. Taiwan’s main semiconductor makers have offered constructive ahead steering that orders for AI-related items are anticipated to stay strong for the following one 12 months.

Briefly, the divergence between Tech and non-Tech sectors is one main rationalization. Inventory efficiency and macro knowledge recommend an analogous story. Furthermore, if we glance into the compositions of the tech sectors in Taiwan and Korea, the distinction would additionally clarify the fairness divergence between these two markets.

3 – Taiwan’s tech trade is extra concentrated in semiconductors and {hardware} provide chain, however Korea has the next weight in client electronics and software program

If we break down into sub-sectors, FTSE Taiwan has extra semiconductor centered gamers, that are a comparatively bigger beneficiary amid the AI increase in comparison with different Tech sub-sectors, akin to software program and digital companies. FTSE Korea’s Semiconductors sub-sector has additionally outperformed considerably, however the weight is somewhat small at 9.8% vs Taiwan’s 58.3%. Laptop {Hardware} can also be an enormous beneficiary, however Korea solely has 0.3% in Laptop {Hardware}. As well as, in Korea, 2.8% are in Shopper Digital Providers (e.g. NAVER (OTCPK:NHNCF) and Kakao), and 33.9% is Samsung Electronics. These shares have the next income contribution from non-semi companies, limiting the efficiency.

Desk 1: Tech Weights – FTSE Taiwan Vs FTSE Korea Index

Click on to enlarge

Supply: FTSE Russell and LSEG. Information as of Jun 2024. Numbers could not add up on account of rounding. Please see the tip for necessary authorized disclosures.

In abstract

With AI-driven demand being a transparent driver prior to now 1-2 years, Taiwan’s excessive focus in semiconductors and tech {hardware} allowed its fairness market to outperform. The fairness market seems to have change into extra of a bellwether for world AI demand, which is comparatively unbiased from the worldwide financial cycle.

Alternatively, Korea’s non-tech-industries have confronted uncertainty round world development outlook, dragging Korea’s total efficiency. These have led to the divergence between Taiwan and Korea fairness markets. Therefore, for Korea fairness to see a broader rally, industries which might be extra tied to the worldwide financial cycle, akin to Industrials, Fundamental Supplies and Shopper Discretionary are key.

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