Behind the Boom in Asian Stock Markets: "Tariffs, Exchange Rates, Semiconductors" [Click e-Stock]

Greater Easing of Tariff Risks Compared to Europe
Asia Stands Out Amid Eurozone Political and Fiscal Risks
Currency Weakness and Semiconductor Industry Expectations Also Positive Factors

Tariffs, exchange rates, and the semiconductor industry have been cited as key factors behind the relative strength of Asian stock markets compared to major markets such as the United States. As tariff risks were particularly pronounced in the first half of the year compared to other countries, there was a sense of relief as uncertainties eased in the second half. In addition, the tailwinds from the semiconductor boom further contributed to this trend.

On September 24, IM Securities explained the background of the relative strength of Asian stock markets in this context. Even as stock markets in major countries, including the United States, continue to rally to record highs, the strong performance of Asian stock markets has become increasingly prominent.

Already, in the second half of the year-especially recently-the domestic KOSPI index and Japan’s Nikkei index have shown stronger performance compared to the Nasdaq and Germany’s DAX index. In terms of annual growth rates, the KOSPI (34.07%) outperformed the Nikkei (20.6%) and Taiwan’s TAIEX (15.43%), posting the highest increase. However, since the end of August, the Nikkei and TAIEX have demonstrated even stronger momentum.

IM Securities pointed to the easing of tariff uncertainties as the primary reason for the strength. While tariff risks have eased for all countries, including Europe, South Korea, Japan, and Taiwan have a relatively higher proportion or significance of exports to the United States in their overall exports. As a result, the degree of tariff risk reduction was relatively greater for these countries compared to the first half of the year.

Fiscal risks in major European countries have also reduced the relative investment appeal of European stock markets. Fiscal issues in major European countries such as the United Kingdom and France have led to instability in ultra-long-term government bond yields, causing the Eurozone’s economic recovery to slow somewhat. The manufacturing sector in the Eurozone, which had been recovering moderately, has also slowed again, influenced by local fiscal risks and political instability.

Currency weakness has also played a role. While the euro has maintained strength in line with the improving fundamentals of the Eurozone economy, this has ironically decreased the investment appeal of the Eurozone.

In contrast, major Asian currencies such as the Korean won and Japanese yen have remained weaker than expected, despite the weakening trend of the US dollar. As the economic fundamentals of South Korea and Japan are on an improving trend, and considering the US Federal Reserve’s additional rate cut cycle, the Korean won and Japanese yen are likely to strengthen toward the end of the year.

Park Sanghyun, a researcher at IM Securities, stated, "This provides momentum for global investors to maintain a positive outlook on major Asian stock markets, including South Korea. Although the domestic stock market is reaching record highs, the KOSPI index in dollar terms is still well below its peak, giving foreign investors reason to expect further gains in the domestic market."

Expectations for the semiconductor industry are also cited as a major factor. Despite sluggish economic conditions in the first half of the year, the global defense sector emerged as a significant growth driver. Recently, expectations for the semiconductor industry have been spreading due to the strengthening investment cycle in artificial intelligence (AI). The main beneficiaries of this trend are the stock markets of South Korea, Japan, and Taiwan.

The relative strength of Asian stock markets is expected to continue for the time being. Researcher Park predicted, "Expectations for additional rate cuts by the US Federal Reserve and the resulting expansion of global liquidity, along with the weakening US dollar, will have a favorable impact on global stock markets. In particular, expectations for the semiconductor industry will further bolster the strength of major Asian stock markets."