Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / What the Korea ETF Surge Says About Global Supply Chains
Transcript
- Lucas: So South Korea's EWY ETF is up fourteen percent in the last five days. Taiwan's EWT, up thirteen and a half. The broader emerging-market ETFs are up too, but nothing like that. Luna: That's a huge gap. EEM is up six percent, VWO about four. So something specific to Korea and Taiwan is happening. Lucas: Yeah, and I think the headline tells part of it: Micron hit a trillion-dollar market cap today, stock up eighteen percent. Memory chips are on fire. Luna: Micron is us based though. How does that connect to the Korea and Taiwan ETFs? Lucas: Right, so the way to think about it is: Micron's surge is a signal for the entire memory-chip ecosystem. Korea's Samsung and SK Hynix are the two biggest memory makers in the world. Taiwan's TSMC isn't memory, but it's the foundry for a lot of the logic chips that go alongside memory in AI servers. When Micron rallies that hard, investors look at the whole supply chain. Luna: And they're also looking at the US dollar. Trade-weighted dollar index hit 119.3 last week, highest in years. That usually hurts emerging markets, not helps them. Lucas: Exactly, but here's the nuance. If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Anyway, the nuance is that a strong dollar hurts countries that import a lot or have dollar-denominated debt. Korea and Taiwan are export powerhouses with strong current accounts. They actually benefit when global demand shifts toward their exports because the dollar strength is partly a story of US demand staying hot. Luna: Yeah, that makes sense. Their goods become cheaper for US buyers, and they don't have the same FX debt vulnerabilities that say, Turkey or Argentina have. Lucas: Precisely. So the rally in EWY and EWT is a bet on two things: one, that the ai driven memory cycle has legs, and two, that these economies are structurally less exposed to the dollar squeeze. Luna: But China's FXI is down 1.8 percent this week. That's the other side of the trade, right? Money rotating out of China into Korea and Taiwan. Lucas: Yeah, and that's a multi-year trend accelerating. The yuan just weakened past 6.8 per dollar. That's a new low. Meanwhile, the yen is at 158.7, also weak, but Japan's export machine is more about autos and machinery. Korea and Taiwan are right in the sweet spot of the semiconductor capex cycle. Luna: Let's talk about that Micron number specifically. A trillion-dollar market cap for a memory company. That would have seemed crazy five years ago. Lucas: Absolutely. Memory was always a commodity business with brutal cycles. But AI training and inference require enormous amounts of high-bandwidth memory. Micron's HBM3E is basically sold out through next year. Samsung and SK Hynix are in the same boat. Luna: So the ETF surge is partly a reflection of that earnings outlook. But also a strategic realignment. Investors are pricing in that Korea and Taiwan become more critical as supply chains move out of China. Lucas: Right, and that's the structural story underneath the weekly move. The US trade deficit widened to $60 billion in March. That's the largest in a while. The current account deficit is also huge. But the composition matters: imports of capital goods and electronics are rising, which means US companies are still investing in equipment. A lot of that equipment comes from Asia. Luna: And with the CHIPS Act and export controls on China, the production lines are increasingly concentrated in Korea, Taiwan, and to some extent Japan. China's share of global chip production is actually declining despite all the investment. Lucas: Yeah, the China decoupling narrative is real in semiconductors. The US government has restricted equipment exports to China, and Chinese firms like Huawei are developing their own alternatives, but the global supply chain is regrouping around Korea and Taiwan. Luna: So when you look at EWY up 14 percent in a week, it's not just a risk-on rally. It's a vote of confidence in that realignment. Lucas: Exactly. And the valuations are still reasonable. Korea trades at a discount to the US market, partly because of the 'Korea discount' — governance concerns, geopolitical risk from North Korea. But if earnings are growing at double digits, that discount starts to close. Luna: Taiwan's EWT is up even more on a year-to-date basis, I think. The semiconductor cycle there is broader — not just memory, but logic, foundry, packaging. Lucas: Right. TSMC is the linchpin of the entire global chip supply chain. And Taiwan's other firms, like MediaTek and United Microelectronics, are also benefiting. The ETF gives you exposure to that whole ecosystem. Luna: One risk I keep hearing about: what if the US election or geopolitics disrupts this? Taiwan is obviously a flashpoint. Lucas: For sure. That's why the Korea trade is interesting — Korea is less directly in the crosshairs. But both depend on global trade staying open. If tariffs escalate or if there's a blockade, these ETFs would get crushed. Luna: But the market is clearly not pricing that in right now. The VIX is low, the S&P is at 7,500, the Dow above 50,000. This is a risk-on environment. Lucas: Yeah, and the move in Korea and Taiwan is a smart way to play it. You're buying cyclical exposure to AI capex, dollar strength resilience, and supply chain restructuring all in one. Luna: So for someone listening who wants to look into this, what's the first thing they should check? Lucas: Look at the earnings reports from Samsung and SK Hynix next month. If their memory guidance is strong, that will confirm the trend. Also watch the won and the Taiwan dollar — if they strengthen against the dollar, that's another sign of capital flowing in. Luna: And keep an eye on the US trade data. The March deficit was $60 billion. If April comes in even wider, that's more fuel for the export story. Lucas: Exactly. So the takeaway is: this isn't just a weekly ETF pop. It's a structural bet on where global manufacturing is headed. Korea and Taiwan are in the right place at the right time.