How a Sharp AI Reassessment Erased a Quarter of Korean Equities

In the first half of 2026, South Korea and Taiwan rode a wave of AI euphoria that sent semiconductor stocks soaring. By early June, both markets had overtaken India in market capitalisation and broken into the global top six. The gains were extraordinary—South Korea’s market cap peaked above $5 trillion, lifting its year-to-date advance to 87%.

Those gains unravelled with startling speed. A growing chorus of scepticism around the sustainability of AI-related capital expenditure ignited a selloff in semiconductor names, the very stocks that had powered the rally. Over the next month, South Korea’s market cap plunged 26.8% to $3.4 trillion, trimming the year-to-date gain to just 27%. Taiwan fell 15% to $4.4 trillion, with its 2026 return halved to 33%.

The rout shuffled the global league table. South Korea dropped from the top five to tenth place, while Taiwan slipped to seventh. In contrast, Indian equities held steady—the benchmark Sensex added 0.6%—pushing India’s $5.1 trillion market up to sixth. For South Korea, the selloff was compounded by a domestic shock: revived talk of a tax on unrealised capital gains stoked panic among retail investors.

Why India Held Firm While Taiwan and Korea Sank

The AI Capex Revaluation

The core of the selloff is a market-wide repricing of the artificial intelligence investment cycle. South Korea and Taiwan are concentrated in semiconductor manufacturing, making them proxies for global AI hardware demand. When analysts began questioning whether the buildout of AI infrastructure could justify current spending rates, the valuation premium attached to chipmakers evaporated. The speed and scale of the declines—South Korea lost over a quarter of its market value in a month—signals that investors are no longer willing to accept AI growth assumptions on faith.

South Korea’s Double Blow

While the AI capex doubt was the primary trigger, South Korea faced an additional headwind. A proposal to tax unrealised capital gains, which had been dormant, resurfaced just as the market turned. The renewed discussion spooked the country’s influential retail investor base, whose leveraged positions had helped fuel the earlier rally. Forced selling and margin calls likely amplified the downside, leaving the Kospi and Kosdaq more battered than their Taiwanese counterparts.

India’s Defensive Appeal

India’s resilience owes much to its comparatively lighter exposure to the semiconductor cycle. The Sensex is dominated by financials, IT services and domestic consumption plays—sectors less directly linked to AI hardware capex. Steady domestic institutional inflows and a modestly improving earnings picture also cushioned the market. The net result is that India not only avoided the rout but edged up the rankings, a rare instance of relative outperformance during a global tech shock.

What the Ranking Shuffle Means for Global Investors

  • Reassess Asian tech exposure: With Korea down 26.8% and Taiwan down 15%, the immediate question is whether further downgrades to chip capex are coming. Monitor Q3 guidance from Samsung, SK hynix and TSMC—any hint of reduced spending could trigger another leg lower.
  • Watch South Korea’s tax timeline: The revived capital gains tax discussion is a wildcard. Retail panic could persist if the government presses ahead, meaning Korean equity volatility may stay elevated even if AI sentiment stabilises.
  • Consider India’s relative strength in allocation decisions: India’s 0.6% gain while Korea and Taiwan cratered highlights its defensive role in emerging market portfolios. Global allocators may treat Indian equities as a haven if the AI unwind continues.
  • Don’t extrapolate linearly: The repricing has been violent; a bounce is possible if chipmakers reassure on long-term demand. However, the ranking moves show how quickly market leadership can shift when a concentrated sector thesis breaks.

Risk & Opportunity Assessment

Commercial RiskHighHeavy exposure to semiconductor stocks amplified the selloff, with South Korea losing 26.8% in a month. Further repricing of AI capex could deepen portfolio losses across both markets.
Competitive RiskMediumIndia’s steady performance and improved global ranking may attract capital flows away from Korea and Taiwan, particularly if the AI thesis remains under pressure.
Regulatory RiskMediumSouth Korea’s revived talk of a tax on unrealised capital gains added an extra layer of domestic selling. If enacted, it could structurally alter retail participation and market liquidity.
Reputation RiskLowNo individual corporate governance or reputational failure is at play; the move is driven by sector-level sentiment reversal.
Technology DisruptionHighThe trigger was a fundamental rethink of the pace of AI infrastructure spending, directly threatening the earnings trajectory of the semiconductor companies that dominate both markets.
Commercial OpportunityMediumIndia’s resilience positions its market as a potential beneficiary of risk-averse rotation, though the modest 0.6% gain suggests the flow has been limited so far.