EBC Markets Briefing | Asia market fervour is stretching a bit too far

Some Asian stock markets have outperformed the US in 2026, with the S&P Asia 50 surging 50%. Analysts believe the bull run is far from over due to deep-value pricing, localized growth, and structural economic catalysts.

TSMC, Samsung Electronics and SK Hynix dominate the global semiconductor supply chain. The companies are generating immediate, concrete profits from high global demand for advanced AI memory and processors.

HSBC said in early June the stock is the biggest portfolio underweight among Asian and global emerging-market funds. Japan and South Korea are benefiting from another tailwind – corporate governance reforms.

TSE shifted its approach from a simple "tick-the-box" compliance model to strict, actionable capital efficiency demands; while Seoul has leaned into rigid legislative and tax-based enforcement.

iShares MSCI TAIWAN ETF's YTD gain of over 75% appears mind-boggling, especially after 3 years of strong rally in a row. But the fund saw a record redemption of $1.1 billion last month.

Global banks are curbing hedge funds' leveraged bets on Asia's top chipmakers after a blistering rally this year raised concerns of a potential pullback, said people familiar with the matter about two weeks ago.

The concern was that a major correction would affect the value of their clients' holdings, leading to potential defaults on margin calls and ultimately threatening losses for banks.

New oil

Silicon Data has partnered with CME Group to launch what could become the world's first futures contracts tied to the computational power needed to run AI. ETFs tied to the instrument are also in the works.

Most businesses rent high-end AI GPUs rather than buying them. However, skyrocketing demand for AI infrastructure causing computing costs to fluctuate makes budgeting and financial forecasting difficult for companies.

Silicon Data has created GPU price indexes that monitor hourly chip rental rates across different providers. The benchmarks are aimed to act as a pricing anchor, similar to Brent crude for the oil markets.

Unlike a barrel of oil, AI compute is not a standardized physical commodity. Despite that, the upcoming launch reflects widespread adoption of algorithm-based assistance in operation.

TSMC's chip supply will fall short of AI-fuelled demand for years to come, the CEO Wei said, suggesting production capacity remains a key bottleneck in the buildout of computing infrastructure.

The firm is aggressively scaling up its capacity as tech giants like Nvidia and Broadcom compete for its advanced manufacturing nodes. Consequently, the revenue is projected to grow over 30% for the year.

South Korea's government is in talks with ‌Samsung Electronics and SK ‌Hynix over plans for the next phase of large-scale investments in semiconductor production facilities, an official said on Wednesday.

Stampede risk

The trend toward passive funds has accelerated most aggressively in Asia, driven by incredible market concentration. TSMC, Samsung and SK Hynix now account for almost 35% of iShares MSCI All Country Asia ex Japan ETF.

Over the last five years, Asia's active funds have seen $269 billion of cumulative outflows, while passive funds have drawn in $510 billion, with a quarter of that coming in just the last six months, according to BNPP.

Investors with heavy mega-cap tech exposure must either rebalance or accept the historical structural risks. An example is the 1970s Nifty Fifty bubble triggered years of market stagnation.

The prospect that the Fed will raise interest rates to keep US inflation in check has deepened concerns over valuations. Futures markets show a 25-bp rate increase is fully priced in by October this year.

Mike Bell of RBC BlueBay noted that heavy leverage, and intense retail buying means the market is sitting on a powder keg, where any small trigger could lead to sharp declines.

UBS recommends expanding AI investment strategies beyond pure technology into physical sectors, specifically targeting infrastructure, industrials, automation, and power supply chains due to accelerating adoption.

Defence stocks in Asia are experiencing a major boom, driven by escalating geopolitical tensions, including the Iran conflict and soaring NATO military spending.

EBC Financial Group Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Global Financial Collaboration or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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