South Korea and Taiwan's Stock Markets Are Surging. Here's Why—and What Could Go Wrong.

Goldman Sachs just raised its forecast for South Korea's main stock index, the KOSPI, to 9,000. The index has already climbed more than 80% this year. The investment bank expects this rally to keep going because of artificial intelligence—specifically, the technology and infrastructure companies building the systems that make AI work.

Goldman predicts South Korea's economy will grow at 2.5% in 2026, up from 1% in 2025. That's because of all the investment flowing into AI-related manufacturing and infrastructure. Samsung Electronics, South Korea's tech giant, hit a $1 trillion market value in May 2026—a milestone reached by only a handful of companies globally.

Taiwan Is Growing Even Faster

Taiwan is in an even more dramatic moment. Its stock market recently overtook Canada's to become the world's sixth-largest. South Korea, meanwhile, has jumped ahead of the U.K. into eighth place.

Goldman forecasts Taiwan's economy will grow by almost 10% in 2026, jumping from 8.7% the year before. This is almost entirely because Taiwan makes most of the world's advanced computer chips—the foundational technology that AI systems run on.

One company dominates this story: Taiwan Semiconductor Manufacturing Company, or TSMC. It makes up more than 40% of Taiwan's main stock index. Put another way, if you own a fund that tracks the entire Taiwan market, you're really just betting on one company to keep succeeding.

One Big Risk: Too Much Depends on One Company

This concentration creates a genuine tension. On one hand, TSMC's dominance reflects real economic power—the company genuinely is crucial to global AI infrastructure. On the other hand, it means Taiwan's entire stock market can be buffeted by what happens to a single firm.

Consider what happened in the late 1990s during the dot-com boom. A handful of internet stocks drove market indices higher while many other sectors stayed weak. When those stocks eventually fell, the whole market crashed. Today's situation is different in one important way: AI infrastructure does appear to be genuinely transformative, not speculative hype. But the concentration risk—having so much wealth tied to one or two names—mirrors that old pattern.

Central Banks Are Starting to Raise Interest Rates

As these economies heat up, their central banks are tightening monetary policy. That's economist-speak for raising interest rates to prevent prices from rising too fast.

Goldman expects South Korea's central bank to raise rates by 25 basis points twice in the second half of 2026. (A basis point is one-hundredth of a percent—so 25 basis points is 0.25%.) Taiwan's central bank is moving more cautiously, with two smaller increases of 12.5 basis points planned.

South Korea's more aggressive approach suggests its policymakers worry more about inflation. Taiwan's more gradual pace suggests confidence that rapid growth can happen without creating dangerous price pressures.

The AI Boom Spreads Beyond Just Chips

The surge in stock prices isn't limited to chip makers. Companies that build the fiber optic cables and networking equipment connecting data centers are also expanding rapidly.

Lumentum, which makes optical networking gear, plans to expand its factory capacity by 40% between Q3 2025 and Q2 2026. That's because AI systems require not just chips but also the infrastructure that connects them. Think of it like building an interstate highway system—the road itself (fiber) and the traffic control systems (networking equipment) matter as much as the vehicles (chips) that drive on it.

Markets Are Being Reshaped Globally

What's happening in Asia is rewriting how the world's stock markets rank by total value. This matters for anyone with a retirement account or investment portfolio, because many funds simply track the entire global market, automatically increasing their exposure to whichever countries' stocks rise fastest.

As Asian technology stocks soar, they take up more room in these global indices. That means your index fund is automatically buying more of these stocks, whether or not you chose to focus on Asia specifically. For professional investors managing large sums, this shift forces difficult decisions about whether to increase or decrease their bets on Asian markets.

The Core Question: Are These Valuations Justified?

Goldman Sachs is bullish—the bank expects both markets to keep climbing. But here's what those price forecasts actually assume: that companies will successfully implement AI into their operations, that spending on AI infrastructure will continue growing, and that the returns from that spending will be substantial enough to justify today's stock prices.

None of that is guaranteed. AI remains in early stages. If companies struggle to deploy it usefully, or if spending stalls, stock prices could fall sharply. The fact that gains are concentrated in a few stocks makes such a decline hit harder. When only a handful of names drive an entire market upward, a reversal in those names can trigger a broad market decline.

Real Risks Worth Noting

Taiwan makes nearly all the world's advanced chips. That strategic importance is a strength—and a vulnerability. Geopolitical tensions could disrupt chip supply, or new trade policies could restrict the flow of technology between countries.

Currency movements also matter. Stock prices in Asia have surged partly because investors worldwide are pouring money into these markets. That flow could reverse quickly if investors lose confidence. When fear spreads, money flows out just as fast as it flowed in, sometimes faster.

For anyone with significant money in index funds or Asia-focused investments, it's worth asking: Am I comfortable with having 40% of my Taiwan exposure tied to one company? That's not a question with a simple yes or no answer. It depends on your age, your other holdings, and how much risk you can stomach. But it's a question worth asking.