Investors reduce exposure to Asian chip stocks after big rally

In short: Some large investors are cutting back on Asian chipmaker stocks after a strong rise left these companies taking up a large share of emerging markets funds.

What's going on

Investors are starting to reduce their bets on Asia’s biggest chipmakers after a rally worth about $1.8 trillion began to cool. The companies include Taiwan Semiconductor Manufacturing Co (TSMC), South Korea’s SK Hynix, and Samsung Electronics.

These three firms have nearly doubled in value over the past six months. They now make up about 29% of the MSCI Emerging Markets index, which is a widely followed list of large companies in developing economies (like a scoreboard that many investment funds try to match).

Fund groups including Fidelity International and BlackRock said they are paying closer attention to the risks of this concentration. When a small number of stocks become a big part of an index, a sudden drop can pull down many funds at once, even if the rest of the market is doing fine. Some trading strategies also use borrowed money to amplify gains and losses, which can make price swings sharper.

South Korea’s broader stock market has fallen by more than 20% from its June high. Foreign investors have sold about $100 billion in Korean stocks this year, and that has also pressured the Korean won.

What to watch

Two things could change the story from here. Demand for AI-related chips and memory could stay strong, which would support profits. Or new competition and added supply, including planned stock listings from Chinese memory firms and a revival effort at Intel, could push prices and expectations down.

Source: Financial Times