Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why Taiwan Semiconductor Dominates EM Tech in 2026
Transcript
- Lucas: So Taiwan's ETF, ticker symbol E-W-T, is up more than five percent in just the last five trading days. That puts it among the best-performing emerging markets this month, and it's worth asking why. Luna: Especially when you look at China's ETFs — FXI and MCHI — both down three to four percent over the same stretch. That's a pretty stark divergence. Lucas: Right. And it's not just a short-term blip. Taiwan has been quietly consolidating its position as the critical node in global semiconductor supply chains. TSMC alone accounts for something like 90 percent of the world's most advanced chips. Luna: And those advanced chips are what power AI accelerators, the latest smartphones, even automotive processors. If you need a three-nanometer or a two-nanometer chip, there's really only one place to go. Lucas: Exactly. That gives Taiwan an extraordinary amount of pricing power and strategic leverage. The island's foundry industry now generates over sixty percent of global semiconductor foundry revenue, according to the latest industry data. Luna: So the recent rally — is it about fundamentals, or is there a specific catalyst? Lucas: A bit of both. On the fundamental side, TSMC reported strong May revenue figures a couple of weeks ago, up nearly thirty percent year-over-year. That signals that demand for advanced nodes is still accelerating. Luna: And on the catalyst side? Lucas: There's growing optimism that the U.S. CHIPS Act funding is starting to flow to TSMC's Arizona fab, which reduces some of the geopolitical overhang. Plus, Taiwan's government just announced expanded tax incentives for R&D in semiconductor design. Luna: So the market is pricing in less disruption risk, more growth visibility. Meanwhile, China's tech sector is facing the opposite — regulatory headwinds and a slowing domestic economy. Lucas: Baba down over six percent in five days, JD down five, PDD down six. That's a bloodbath. And it's not just the China-specific ETFs — the broader emerging market ETF, EEM, is up two percent, so China is dragging down the whole index. Luna: Let's talk about the broader EM picture. We've seen a decoupling narrative for a while — that EM growth is no longer synonymous with China. But Taiwan's rally really crystallizes it. Lucas: Yeah. Taiwan, South Korea, India, Mexico — these are the markets that are actually driving EM returns in 2026. Korea's EWY is up almost four percent in five days. India's INDA up one point two percent. Luna: And Mexico's EWW is down two percent, which is interesting. I thought nearshoring was supposed to be a tailwind there. Lucas: It is, but Mexico is also sensitive to U.S. demand. If there's a whiff of a slowdown in the U.S., Mexico feels it faster than Taiwan does, because Taiwan's demand is driven by global tech investment, not just U.S. consumer spending. Luna: Makes sense. So for listeners trying to position themselves in EM right now, what's the big takeaway? Lucas: The key is to look at where the structural growth is. Semiconductor and tech hardware supply chains are deepening in Taiwan and Korea. India is building out digital infrastructure. These are multi-year trends, not just a June rally. Luna: And you can't ignore the geopolitical risk. Taiwan's strength is also its vulnerability. If tensions escalate, the entire global tech supply chain seizes up. Lucas: That's the flip side. The market is essentially betting that the status quo holds — that the U.S. and China manage their rivalry without a kinetic event in the Taiwan Strait. So far that bet has paid off, but it's a concentrated bet. Luna: By the way, if walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these shows ad-free. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, we don't run ads, we don't have a paywall. Just listeners who find value and want to support it. It really does make a difference. Luna: So back to Taiwan — do you think this outperformance is sustainable? Or is the market getting complacent on risk? Lucas: I think it's sustainable as long as tech spending remains strong. But I'd watch the dollar. The trade-weighted dollar index has dipped a bit, to 119.5, down from 120 earlier this month. A weaker dollar helps EM broadly, but Taiwan especially because its exports become more competitive. Luna: And the yuan has weakened a bit — 6.76 per dollar, down from 6.78. That's not huge, but it signals continued pressure on China's currency. Lucas: Right. And that pressure feeds into capital outflows from China, which in turn feeds into the divergence we're seeing. Investors are rotating out of China and into other EM markets that offer better growth and less policy uncertainty. Luna: So the old EM trade of 'buy the index' is dead. It's really a stock-picker's or country-picker's market now. Lucas: Exactly. And within that, Taiwan is the standout because it's not just a cyclical play — it's a structural play on the most important technology of our time. Semiconductors are the new oil, and Taiwan is the Saudi Arabia. Luna: That's a great way to put it. So for our listeners, if you want to learn more about how to think about EM allocation, we'll link to some resources in the show notes. And as always, thanks for spending time with us. Lucas: We'll be back tomorrow with another episode. Until then, keep your eyes on those chip stocks.