AI Chip Rally Leaves Asia’s Fund Managers Struggling To Keep Pace

The powerful rally in semiconductor stocks across Taiwan and South Korea has transformed Asia’s equity markets, concentrating an unprecedented share of benchmark indexes in just a handful of companies and creating new challenges for fund managers seeking to outperform.

The surge has unfolded as governments and investors increasingly focus on semiconductor supply chains amid ongoing geopolitical tensions. Concerns over Taiwan’s strategic importance to global chip production have remained in focus as China continues military activity around the island, while the United States, Europe and several Asian governments have expanded efforts to secure domestic semiconductor capacity and reduce supply chain vulnerabilities.

Three companies, viz., Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung Electronics and SK Hynix, now account for nearly one-third of the MSCI Asia Pacific ex-Japan Index, according to a Reuters analysis published Monday. Their outsized influence has reshaped benchmark construction across the region and forced many active fund managers to reduce holdings despite strong share-price performance.

Sam Konrad, investment manager for Asia Equity Income at Jupiter Asset Management, said his fund has been selling shares of TSMC, Samsung and MediaTek because the positions had grown too large relative to portfolio guidelines. Reuters reported that TSMC shares have risen 52% this year, while Samsung and MediaTek have gained 159% and 184%, respectively.

The rapid rise of semiconductor stocks has also increased the concentration of local market indexes. TSMC now represents 41.5% of Taiwan’s benchmark TAIEX index, while Samsung and SK Hynix together account for roughly 55% of South Korea’s KOSPI, according to Reuters.

Those concentrations have made it increasingly difficult for active fund managers to keep pace with benchmark performance. HSBC said TSMC has become the largest underweight position among Asian and global emerging-market funds because many portfolio managers cannot allocate as much capital to a single stock as market-capitalization-weighted indexes require.

“The degree of concentration creates structural challenges,” Herald van der Linde, head of equity strategy for Asia-Pacific at HSBC, said in research cited by the outlet.

The trend mirrors developments seen in the United States, where the so-called Magnificent Seven technology stocks have become dominant components of major indexes. However, concentration levels in Asia have risen more rapidly and are more heavily centered on semiconductor manufacturers, Reuters reported.

The shift has accelerated investor migration from actively managed funds to passive investment products. Data analyzed by BNP Paribas Securities showed that Asian active funds experienced cumulative outflows of $269 billion over the past five years, while passive funds attracted $510 billion during the same period. Approximately one-quarter of those passive inflows arrived during the last six months.

William Bratton, head of cash equity research for Asia-Pacific at BNP Paribas Securities, said the scale of recent passive-fund inflows into the region has been unlike anything recorded during the previous decade.

The rally has also produced volatility. South Korean equities fell 12% from recent record highs during a three-session selloff, while Taiwanese stocks declined 6% over the same period as investors reassessed semiconductor valuations, the Reuters report said.

Market leadership has become increasingly concentrated around technology shares. Goldman Sachs noted that information technology stocks have significantly outperformed sectors such as healthcare and consumer staples. The bank also found that while the MSCI Asia Pacific ex-Japan Index has gained 27% this year, the benchmark is down 4% when Taiwan and South Korea are excluded.

Investors seeking diversification have increasingly moved deeper into semiconductor supply chains. Reuters reported that Aberdeen Investments recently added positions in ASMPT and Grand Process Technology Corp., both suppliers serving chip manufacturers.

Others continue to favor larger companies linked to semiconductor production and advanced electronics. Konrad said his fund owns shares in Taiwan-based manufacturers Hon Hai Precision Industry and Quanta Computer, along with SK Hynix and MediaTek.

The growing dominance of semiconductor companies reflects broader changes in global capital markets. According to a recent analysis from the Financial Times, chipmakers and semiconductor equipment suppliers have become some of the most valuable listed companies in Asia as demand for advanced computing infrastructure continues to drive investment across the sector. Meanwhile, Bloomberg reported last week that technology stocks were responsible for the majority of gains across several major Asian indexes during the first half of 2026.

At the same time, capital flows have become increasingly volatile. Reuters reported that foreign investors pulled a record $27.9 billion from South Korean equities in May as portfolios were rebalanced, while Nomura recorded $20.4 billion of year-to-date inflows from U.S.-domiciled funds into South Korea and Taiwan.

Rupal Agarwal, Asia quantitative strategist at Bernstein, said the concentration risk now evident in Asian equity markets is unlike anything investors have experienced previously. Her comments came as semiconductor stocks continued to dominate regional benchmarks, highlighting how a small group of companies has come to exert unprecedented influence over Asia’s stock markets.