Global funds buy Japan as they flee Asia’s hottest stock markets

Published Wed, Jun 3, 2026 · 02:13 PM

[HONG KONG] The global AI trade has turned South Korea and Taiwan into Asia’s top two stock markets this year. Yet for foreign investors, the region’s most compelling destination lies elsewhere: Japan.

Overseas investors have sold nearly US$70 billion of South Korean shares this year, while flows into Taiwanese equities have also flipped negative, according to data compiled by Bloomberg. By contrast, Japan had attracted US$73.6 billion of inflows as at May 22.

Japan also emerged as the favourite Asian stock market in a Bank of America fund manager survey conducted May 8 to 14.

The contrast shows global investors’ growing preference for the Japanese market’s structural advantages, including its depth and diversity, as well as the country’s corporate governance reforms. Their retreat from South Korea and Taiwan also raises fresh questions about the durability of a blistering AI rally concentrated on a few chipmakers and accelerated by a rapid buildup of financial leverage.

“Japan is the most investable Asian market after all, as it’s much bigger and broader,” said Chauwei Yak, CEO at hedge fund GAO Capital in Singapore. “Even though the South Korean market has done better, it’s really like two stocks there.”

Yak was referring to Samsung Electronics and SK Hynix, which together make up more than half of the total weightings of South Korea’s benchmark Kospi index. Similarly, Taiwan Semiconductor Manufacturing Company accounts for nearly 42 per cent of the Taiex gauge.

Meanwhile, the weightings of Japan’s Topix index are so spread out that its top three constituents, Mitsubishi UFJ Financial Group, SoftBank Group and Toyota Motor, each accounts for around 3 per cent.

While financial firms have been the outperformers in Japan this year, the country’s technology companies also have benefited as the popular AI trade broadened. Among the highlights are Taiyo Yuden and Murata Manufacturing, which dominate the supply of a key product used for constructing AI data centres. Both have seen their shares at least doubled in the past month.

The more diversified market landscape has lent greater stability to Japanese shares, especially compared with the leverage-driven price swings seen in South Korea. As foreign investors sell, South Korea’s risk-loving and fickle retail investors have stepped in, actively scooping up shares.

Expectations for stronger corporate governance reforms have also been a driver of foreign inflows into Japan.

To be sure, some observers argue that the global AI investment spree is far from over, which may offer further upside for the South Korean and Taiwanese chipmakers. It may also be the case that global funds have simply been taking profit after a strong rally, rather than turning bearish. For South Korea in particular, its cheap stock valuations may remain a source of attraction.

Still, as the debate over the runaway AI stock rally intensifies, Japan’s appeal as a strong, steadier and more diversified alternative to the crowded trade is gaining traction.

“I like Japan. I think it offers almost the same exposure to AI as South Korea and Taiwan while also having the angle of structural corporate reform,” said Kevin Net, a portfolio manager at Financiere de L Echiquier. “There’s a real Fomo going on with Taiwan and South Korea, so you have to stay invested. But I definitely feel more comfortable adding Japan from a medium-term perspective.” BLOOMBERG