Asian stocks diverge sharply based on AI; Taiwan, Japan, South Korea winners, China tech losers

Asian stock markets displayed a stark divergence in performance during the first half of 2026, with South Korea's Kospi index surging 101%, Taiwan's market up 59%, and Japan's Nikkei gaining 39%. This strong showing was largely attributed to the booming demand for artificial intelligence (AI) components, positioning these markets as major beneficiaries.

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The market performance is increasingly dependent on proximity to the AI supply chain.

In contrast, Hong Kong's Hang Seng Tech Index suffered a significant setback, dropping 19% as investors divested from Chinese internet stocks. This performance gap underscores the critical role of AI supply chains in determining market winners and losers across the region. Analysts note that markets closely aligned with AI development, particularly semiconductor manufacturers, have weathered concerns about geopolitical tensions, such as the impact of the Iran war on energy-importing economies.

Within these leading markets, a handful of tech giants drove the gains. In South Korea, Samsung Electronics and SK Hynix, both key suppliers to AI chip leader Nvidia, dominate the Kospi index. Similarly, Taiwan Semiconductor Manufacturing Company (TSMC) is a major force in Taiwan's market. The significant weighting of these AI-focused companies means their volatility can heavily influence the broader indices.

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Despite fundamentals remaining supportive, the high concentration of investor exposure increases the risk of sharp stock price fluctuations.

Japan also experienced similar fluctuations in AI and chip-related stocks, including SoftBank, Advantest, and Kioxia. Market sentiment swayed between optimism for AI's long-term prospects and concerns over high valuations and monetization challenges. The divergence was also evident in China, where AI-related firms boosted the ChiNext index, while the Shanghai Composite saw more modest gains. Hong Kong's market, despite a surge in new listings, lagged due to a lack of exposure to AI infrastructure, with global investors prioritizing hardware and infrastructure in other regions.

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Any sharp fluctuation in either of these two stocks directly drags the entire index, and the remaining 900 listed companies have not even had time to impact the broader market.