Taiwan’s AI‑Fueled Rally Tests Valuations as Investors Rotate Into Cheaper Middle East and ASEAN Plays

Taiwan’s equity market has surged to become the third most expensive in the world behind the US and India, fuelled by insatiable demand for AI‑related chips and hardware, prompting some emerging‑market investors to eye cheaper opportunities in the Middle East and ASEAN. A January multi‑asset outlook from Value Partners warns that while the island’s structural story remains strong, “valuation risks are building” as global funds crowd into a small pool of AI winners.

Taiwanese stocks have benefited from a powerful narrative: the country’s leading chipmakers and hardware suppliers are critical nodes in the global AI supply chain, from data‑centre GPUs to networking equipment. With AI investment expected to stay elevated even amid macro uncertainty, asset managers argue that earnings visibility for top names justifies premium multiples. But the same note cautions that “higher market volatility and more frequent rotation are likely,” especially if rate‑cut expectations shift or AI spending slows.

This dynamic is influencing how global EM portfolios allocate across regions. East Capital’s 2026 outlook says emerging and frontier markets enter the year in an environment of lower global rates, a softer dollar and structural themes in AI and energy transition, but emphasises that not all markets are priced equally. While Taiwan and India trade at rich valuations, markets such as Saudi Arabia, the UAE, Vietnam and parts of Africa still offer what it calls “growth at a reasonable price,” particularly in banking, consumer and infrastructure‑linked stocks.

Hong Kong, long a gateway for China risk, faces a more nuanced picture. Some investors are revisiting select Hong Kong‑listed tech, utility and real‑estate names as policy risks in mainland China are reassessed and as yields become more competitive relative to US peers. Others, however, remain cautious, preferring to express Asia exposure through Taiwan, Korea, India and ASEAN while adding Middle Eastern and Latin American equity positions for diversification.

AI itself is a double‑edged sword for EM valuations. On the one hand, countries and companies that can plug into global AI supply chains—whether in chips, data‑centres, clean power or services—stand to gain sustained earnings support. On the other, heavy concentration of AI gains in a few names raises concerns about crowded trades and index vulnerability if sentiment turns. That is pushing some managers to build barbell portfolios: overweight selected AI and tech leaders while also increasing exposure to cheaper cyclicals and reform beneficiaries in regions like the GCC and ASEAN.

For Middle Eastern and Southeast Asian issuers, this global rotation creates both opportunity and pressure. Sovereigns and corporates in the Gulf, Vietnam, Indonesia and the Philippines are stepping up investor‑relations efforts, highlighting reform agendas, demographic dividends and infrastructure pipelines to attract capital that might be looking to trim overweight positions in pricey North Asian markets. At the same time, they must keep improving market access, governance and liquidity to convert investor interest into sustained allocations.

In 2026, the challenge for investors is less about choosing between AI and everything else, and more about balancing AI‑exposed markets like Taiwan with under‑owned, reforming regions that could deliver outsized returns if growth and policy stay on track. That includes parts of the Middle East, ASEAN frontier markets such as Vietnam, and even high‑yield sovereigns like Egypt once disinflation and restructuring progress become clearer.