AI Chip Giants Dominate Asian Equity Landscape, Forcing Active Funds into a Sell-Off Spiral
0xBroomberg
TSMC, Samsung and SK Hynix now account for nearly one-third of the MSCI Asia ex-Japan index — a concentration so high it triggers position limits at active funds, forcing managers to sell their best performers and widening a structural underweight.
Three companies make up a third of the index — what does that mean?
TSMC alone accounts for 41.5% of Taiwan's TAIEX. Samsung and SK Hynix together make up 55% of Korea's KOSPI. This means → investors tracking either benchmark are effectively betting on one or two stocks.
Across the broader MSCI Asia ex-Japan, the three companies hold close to one-third of the total weight. In plain terms = you buy a fund that claims to cover all of Asia, yet a third of your money rides on three chip companies. "Diversification" is a label, not a fact.
The MSCI Asia ex-Japan index is up 27% year-to-date — but strip out Korea and Taiwan, and it is actually down 4%. This reflects a market whose entire gain comes from the AI chip supply chain.
Why are fund managers forced to sell their best-performing stocks?
Sam Konrad at Jupiter Asset Management held TSMC, Samsung and MediaTek — up 52%, 159% and 184% respectively this year. Those very gains triggered his fund's concentration limits, forcing him to cut positions.
HSBC's Herald Van der Linde, head of Asia-Pacific equity strategy, wrote that as these stocks keep outperforming, funds find it harder to add exposure — reinforcing a forced-selling cycle even while fundamentals remain strong.
HSBC data shows TSMC is the most underweighted single stock across Asian and global emerging-market funds. This means → managers are not bearish on TSMC; its benchmark weight is simply rising faster than active-fund rules allow them to follow.
How visible is the concentration cost during a pullback?
Korean equities fell 12% from their record high; Taiwan dropped 6% — both declines concentrated in just three trading days.
In plain terms = the same handful of stocks that pull the index up on the way in drag the entire market down on the way out. Concentration is a double-edged sword that amplifies volatility in both directions.
Is money migrating from active to passive on a structural scale?
Over the past five years, Asian active funds saw net outflows of $269 billion. Passive funds absorbed $510 billion over the same period, with one-quarter of that arriving in the last six months alone.
William Bratton, head of Asia-Pacific cash equity research at BNP Paribas, called recent passive inflows "unprecedented in the past decade."
This reflects a structural shift: when an index is dominated by a few giants, active stock-picking space shrinks — and investors increasingly choose to just buy the index.
How are stock pickers adapting — moving down the supply chain?
Isaac Thong, senior investment director for Asian equities at Aberdeen Investments, recently added ASMPT (HK: 0522) and Grand Process Technology Corp (TW: 3131) — mid-cap suppliers to chip makers whose index weight is low enough to avoid position-limit triggers.
Jupiter's Konrad prefers large caps, allocating nearly half his portfolio to Taiwan and Korea. He holds Hon Hai Precision, Quanta Computer and SK Hynix, with chip designer MediaTek as his largest position.
Yet most of these alternatives still orbit the AI theme. Goldman Sachs data shows information technology leading Asian markets while consumer staples and healthcare lag far behind. This means → sector labels may look diversified, but the return driver has not changed. When the AI narrative itself faces doubt, this "pseudo-diversification" becomes the next vulnerability to test.
Content is for reference only, not financial advice.