Korea's weight in the Morgan Stanley Capital International (MSCI) Emerging Markets Index is expanding rapidly, closing in on China. Taiwan has already overtaken China to become the country with the largest weight in the MSCI Emerging Markets Index. As the global artificial intelligence (AI) industry grows, investment has increased in countries with strong semiconductor competitiveness such as Korea and Taiwan, while China's weight has relatively decreased.
According to the Korea Center for International Finance on the 21st, recent estimated country weights in the MSCI Emerging Markets Index were Taiwan 25%, China 22%, Korea 21%, and India 11%. At the end of the third quarter last year, China's weight topped 30% and Korea was in the 10% range. In just eight months, the gap between China and Korea and Taiwan has narrowed significantly.
In particular, Taiwan surpassed China in the MSCI Emerging Markets Index early this year for the first time in 19 years. Foreign funds have concentrated around TSMC, which dominates the global AI core supply chain. By contrast, China's weight in MSCI has continued to shrink amid ongoing concerns over an economic slowdown, real estate distress, and platform regulation risks.
Korea is also quickly increasing its presence in MSCI on the back of a semiconductor rally led by Samsung Electronics and SK hynix. Even though foreign investors made net sales of more than 90 trillion won in the domestic stock market this year, Korea's weight actually expanded. That is because gains in top market-cap stocks such as Samsung Electronics and SK hynix outpaced foreign selling.
Brokerages interpret this as a global reallocation of funds centered on AI infrastructure. Because the MSCI index applies a free-float market capitalization method, the surge in memory semiconductors and AI infrastructure-related corporations has directly boosted Korea's weight, they said.
The Korea Center for International Finance said in a recent report that "a differentiated trend is emerging in which the MSCI weights of Taiwan and Korea, which have secured competitiveness in the AI value chain, are expanding, while the weights of China and India are shrinking."
However, there is also a clear difference between Korea and Taiwan in the intensity of global fund inflows, analysts said. In addition to AI benefits, Taiwan has won favor from global investors by offering higher dividends and active shareholder-return policies.
According to the Korea Center for International Finance, the payout ratio of listed companies in Taiwan exceeds 50%. That is well above the MSCI Emerging Markets average (40%) and Korea (high-20% range). Taiwan's dividend yield also averages 3.7% over 10 years, higher than Korea's 2.0%.
By contrast, despite strong AI semiconductors, Korea's relatively low shareholder-return policies are cited as a limitation. With labor-management issues such as recent performance-bonus disputes at Samsung Electronics coming to the fore, some note this could be seen by global investors as a concern over the profit-distribution structure.
Some in the investment industry also say Korea's stock market has moved closer to inclusion in the MSCI Developed Markets Index in June. However, for inclusion in the Developed Markets Index, not only a larger market capitalization but also strengthened market trust, including better corporate governance and shareholder-return policies, are important factors.