Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Taiwan Is Becoming the EM Tech Powerhouse of 2026
Transcript
- Lucas: So here we are, mid-2026, and the big story in emerging markets this week is pretty clear: Taiwan is on fire. The EWY ETF, which tracks Taiwan stocks, is up 11 percent in the last five days alone. That's not just a bounce — that's a statement. Luna: That's massive. And it's happening while China's FXI is down almost 5 percent in the same period. The divergence is getting wider. Lucas: Right. And look, we've talked about Korea's surge before — EWY up 11 percent for Korea too — but Taiwan is the one that really fascinates me because of the geopolitical backdrop. I mean, just this morning, China announced trade curbs on dozens of US firms. The tension is real. Yet Taiwan stocks are rallying. Luna: So what's driving it? Is it just TSMC? Lucas: TSMC is a huge part of it, no question. But it's broader than that. The whole semiconductor supply chain in Taiwan is seeing massive demand. And there's this thesis emerging that the more the world relies on Taiwanese chips, the more the island becomes strategically indispensable. Some analysts call it the 'silicon shield' — basically, the idea that economic interdependence deters military action because nobody wants to disrupt the global chip supply. Luna: That's a bold theory. But is it actually holding? I mean, China's rhetoric hasn't softened. Lucas: It hasn't, and that's the paradox. But look at the trade data. Taiwan's exports to the US are up about 30 percent year-over-year. Meanwhile, direct Taiwan-China trade is actually slowing a bit. So the decoupling is happening economically, even as political tensions stay high. And the market is pricing in that Taiwan's tech sector is becoming more integrated with the US and allies, not less. Luna: That makes sense. And TSMC's expansion plans are a big part of that story, right? They're building fabs in Arizona and Japan. Lucas: Exactly. TSMC's Arizona fab is supposed to start production later this year, and they've got a second one planned. In Japan, their Kumamoto fab is already producing chips. So they're diversifying geographically, but the core R&D and advanced manufacturing still stays in Taiwan for now. That gives investors some comfort that the company's value isn't entirely hostage to a single location. Luna: Still, you have to wonder how much of this rally is fundamentals versus just a rotation out of China. The EM space has been all about decoupling stories this year. Lucas: I think it's both. The rotation out of China is real — BABA and JD are down over 5 percent this week alone. But Taiwan's GDP grew 3.2 percent in Q1, which is strong for an emerging market. And their export orders for semiconductors are still climbing. So there's genuine momentum. Luna: And what about the broader EM picture? You've got India's INDA up, Vietnam quietly humming along, but Latin America is struggling — Brazil's EWZ is down 3 percent this week. Lucas: Yeah, it's a bifurcated market. The Asia tech exporters are winning, commodity-driven EMs are getting hit. And a lot of that comes down to the dollar — even though the dollar index has eased a bit to 119.5, it's still strong. That pressures commodity prices and makes it harder for countries with dollar-denominated debt. Luna: So for investors, it's really about picking the right stories. Taiwan seems like a strong one, but what's the risk? If the silicon shield theory fails — if China does something drastic — that 11 percent gain could evaporate overnight. Lucas: Absolutely. And that's the key question. The market is pricing in a low probability of conflict, but it's a tail risk. The way I think about it is: Taiwan's tech sector is so deeply embedded in global supply chains that any disruption would be catastrophic for the entire world economy. So maybe that actually makes it safer, not riskier. But it's not a sure thing. Luna: Speaking of things being useful, if you're finding these episodes helpful in making sense of the EM landscape, I'll say — we keep the show ad-free because of listener support. If today's conversation gave you something to think about, you can throw a few bucks our way at buy me a coffee dot com slash fexingo. It really helps us keep going. Lucas: Yeah, it's a small gesture that makes a big difference for us. And we appreciate every single one of you who chips in. Okay, back to Taiwan — there's another angle I want to look at, which is the role of Taiwan in the AI supply chain. Luna: Oh, that's a good one. Because AI chips are the highest demand driver right now. Lucas: Right. TSMC makes the advanced chips that power NVIDIA's AI GPUs, and those are in massive demand. In fact, NVIDIA's data center revenue has been doubling year-over-year. So Taiwan is literally at the center of the AI boom. And that's not going away anytime soon. Luna: So the Taiwan story is really a tech story with geopolitical risk attached. Lucas: Exactly. And that's what makes it so interesting for EM investors. You're not just buying a country — you're buying a key node in the global tech ecosystem. That's a different kind of emerging market play. Luna: Let me ask you this: How should an individual investor play Taiwan right now? Direct stocks, ETFs, or something else? Lucas: For most people, the EWY ETF is the easiest way. It's liquid and gives you exposure to the whole market. But if you want to focus on tech, there's also the iShares PHLX Semiconductor Index, which has heavy Taiwan exposure. Individual stocks like TSMC are obviously the big one, but you need to be comfortable with the single-stock risk. Luna: And the valuation? EWY's P/E must be getting stretched after this rally. Lucas: It is. The trailing P/E on EWY is around 18, which is not cheap for an EM. But you're paying for the growth and the strategic positioning. I think the key is to size it appropriately — don't go all in, but having some exposure makes sense if you believe in the tech super-cycle. Luna: What about the other side? Are there any Taiwan stocks or sectors that are being left behind? Lucas: Yeah, the traditional manufacturing and financial sectors in Taiwan aren't seeing the same boost. The rally is very tech-led. So if you buy EWY, you're getting some of those laggards too. That's a diversification benefit, but it also means your upside is capped compared to a pure tech play. Luna: Good point. So for someone who wants pure tech, maybe TSMC or a semiconductor ETF is better. Lucas: Right. But remember, TSMC is also listed in the US as an ADR, so it's easy to buy. The ticker is T-S-M. And it's a core holding for many tech investors. Luna: Let's zoom out a bit. How does Taiwan fit into the broader EM narrative for the rest of 2026? Lucas: I think Taiwan will remain a bellwether for the tech-driven EM trade. If AI demand stays strong and geopolitical tensions don't boil over, Taiwan could continue to outperform. But if we see a rotation back into value or a global recession, Taiwan could get hit hard because of its high valuation. Luna: So it's a high-beta play within EM. Lucas: Exactly. And that's why I like it as a tactical allocation. It's not a core holding for a conservative investor, but for someone willing to take some risk, it's a compelling story. Luna: Alright, I'm convinced. I might look into adding some EWY to my watchlist. Lucas: Do it. And keep an eye on the headlines — especially anything related to us china trade and TSMC's earnings. Those will be the key drivers.