[Edaily Reporter Seong Ju-won] TSMC, Samsung Electronics, and SK Hynix—the three stocks that have benefited the most from the artificial intelligence (AI) rally—account for nearly one-third of the MSCI Asia Pacific (ex-Japan) Index. Paradoxically, this has forced active funds holding these stocks into a “forced sell-off.”

According to Reuters on the 8th, Sam Conrad, an investment manager for Jupiter Asset Management’s Asia Equity Income fund, stated, “We had no choice but to sell TSMC, Samsung Electronics, and MediaTek.” Although these three stocks have surged by 52%, 159%, and 184%, respectively, this year, they have exceeded the fund’s weighting limits, leading to selling pressure.
◇The Paradox of Concentration… Three Stocks Dominate the Index
The risk of concentration is evident in the numbers. TSMC accounts for 41.5% of the Taiwan Weighted Index (TAIEX), while #SamsungElectronics and #SKHynix alone make up 55% of the KOSPI. In effect, the indices themselves have become bets on just one or two stocks.
HSBC has diagnosed this structure as “creating structural challenges.” Herald van der Linde, Head of Asia-Pacific Equity Strategy at HSBC, noted in a research report, “The more stock prices continue to outperform (exceed market returns), the harder it becomes for funds to increase their exposure, which deepens the vicious cycle of forced selling and weight reduction.”
In fact, according to HSBC’s analysis, TSMC is currently the most heavily reduced position among Asian and global emerging market funds.
The dual nature of concentration risk was clearly evident in the recent sharp market decline. As concerns over artificial intelligence (AI) valuations grew, the Korean stock market fell 12% and the Taiwanese stock market fell 6% over the past three trading days from their all-time highs.
◇ Double Blow to the Korean Won and Stock Market
This wave of forced selling is dealing a direct blow to the Korean market. According to data from the Korea Exchange, net outflows of foreign capital from Korean stocks reached a record high of $27.9 billion (approximately 42.82 trillion won) in May alone. Portfolio rebalancing is cited as the primary cause.
Reuters reported that these forced sell-offs have placed additional downward pressure on the won, which was already showing weakness.
Conversely, according to Nomura’s tracking, funds flowing into Korea and Taiwan from U.S.-based funds have reached an unprecedented $20.4 billion (approximately 31.31 trillion won) since the beginning of the year. This dual structure, where outflows and inflows intersect, is amplifying volatility in the Korean stock market.

◇ Accelerating Shift from Active to Passive… “Unprecedented Levels”
Just as the U.S. “Magnificent Seven” accounted for about one-third of the S&P 500 and triggered a shift toward passive funds, the same phenomenon is unfolding more rapidly and more drastically in Asia. According to an analysis of data from EPFR, a global fund flow research firm, by BNP Paribas, $269 billion (approximately 412.834 trillion won) has flowed out of Asian active funds over the past five years, while $510 billion (approximately 782.238 trillion won) has flowed into passive funds. A quarter of this inflow has occurred in the last six months alone.
William Bratton, Head of Asia-Pacific Equity Research at BNP Paribas Securities, stated, “The scale of recent capital inflows into regional passive funds is unprecedented over the past decade.”
Goldman Sachs’ analysis quantifies the severity of this concentration. While the MSCI Asia-Pacific (ex-Japan) Index has risen 27% year-to-date, excluding South Korea and Taiwan, it has actually fallen by 4%.
◇Shift in Stock Selection Strategy… Turning Attention to Small- and Mid-Cap Supply Chain Stocks
In this environment, active managers are turning their attention to the lower tiers of the AI supply chain—specifically, small- and mid-cap stocks in semiconductor equipment and components. Isaac Tong, Senior Investment Director for Asian Equities at Aberdeen Investments, recently added mid-cap stocks such as semiconductor suppliers ASMPT (listed in Hong Kong) and Grand Process Technology (listed in Taiwan) to his portfolio.
Conrad at Jupiter is holding shares in Hon Hai (Foxconn), Quanta Computer, and SK Hynix, while allocating the largest portion of his portfolio to MediaTek. He stated, “Our fund and investment approach differ significantly from the benchmark and our peers, and this is the source of our outperformance.”
Rupal Agawal, an Asia quant strategist at Bernstein, assessed, “The concentration risk in Asian stocks has risen to unprecedented levels due to the unrelenting rally since last April.”