Equities
On the ground in Emerging Markets: Taiwan
5 min read 30 Apr 26
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Taiwan’s central role in the global semiconductor industry has driven robust economic growth as companies such as TSMC have benefited from the AI boom. But, as well as being vital to global trade and technology markets, Taiwan is also exposed to geopolitical and energy supply risks. Following a recent visit, Michael Bourke, Head of Emerging Market Equities, shares his insights on Taiwan’s evolving market dynamics and geopolitical challenges.
Epicentre of the global AI supply chain
Over the past 40 years, partly as a result of government investment and incentives, Taiwan has developed into a leading player in the global semiconductor industry. This success can be traced back to the decision to adopt a “foundry” business model, whereby Taiwanese companies make chips for other firms. The most notable manufacturer is TSMC, which counts many of the world’s leading tech firms, including Nvidia and Apple, among its customers.
Taiwan has constantly invested in innovation to maintain its position at the cutting edge of manufacturing capabilities. As the maker of the most advanced chips used in artificial intelligence (AI) and data centres, Taiwan is the proverbial ‘picks and shovels’ seller to the technology gold rush, providing the essential tools for AI. With many of the market’s c.600 tech companies directly or indirectly involved, it sits at the epicentre of the global AI supply chain.
“Taiwan is the proverbial ‘picks and shovels’ seller to the technology gold rush.”
This positioning has seen Taiwan benefit enormously from the AI boom in the past couple of years. Capital expenditure (capex) on chips by major cloud-service providers and technology firms (hyperscalers) has soared as they build out AI models and infrastructure. In 2024, the market’s semiconductor industry generated over US$165 billion in revenue, representing more than 20% of the Taiwan’s GDP1.
Demand for Taiwan’s exports has led to robust earnings growth across the board and boosted Taiwan’s economy, which grew by 8.6% in 2025, the fastest rate in 15 years2. With hyperscalers expected to continue their sizeable investments in AI this year, estimated to be more than $600bn3, the outlook for Taiwan’s economy appears promising, in our view. Growth is forecast to exceed 7% in 20264.
As a critical hub in the global semiconductor industry, which is essential for everything from smartphones and cars to AI, Taiwan is not just a major technology provider; it is an increasingly vital part of the global economy. This is also due to geography: the Taiwan Strait is a strategic trade route used by around 30% of the world’s maritime traffic, including Chinese imports and exports5.
It may be a relatively small island of 23 million people6, but Taiwan’s technological and economic importance is considerable.
Market prominence
Taiwan’s dominance in technology is now reflected in stock market prominence. At the end of February 2026, Taiwan represented over 22% of the MSCI Emerging Markets Index, just behind China, which accounted for around 24%. A large part of this is due to TSMC, which is currently the biggest single stock in the index at 13.4%. This is a notable shift from a decade ago, when Taiwan accounted for around 13% of the index and TSMC had a weight of c.3.5%7.
For investors, this presents a challenge. Given its size, the performance of TSMC can have a significant impact on the performance of the index. Many investment funds are not able to hold such a large position in a single stock, and many investors would probably not feel comfortable doing so.
“Given its size, the performance of TSMC can have a significant impact on the performance of the index.”
Active investors therefore need to think carefully about how to gain exposure to the potentially exciting growth trends that Taiwan, and TSMC especially, offers, while ensuring a diversified investment portfolio.
Supply bottlenecks
Besides portfolio construction, when investing in Taiwan there is also the challenge of managing growth and the heightened expectations of investors. The AI supply chain is extremely dynamic, acting as much a partner to large tech company customers as a supplier, and deeply integrated in conversations on how to improve hardware performance, making it faster and more energy efficient.
At present, there are supply constraints across the value chain. AI demand is being met with a supply bottleneck, although in time that imbalance will likely be resolved. However, higher prices driven by hyperscaler capex are hurting traditional players serving the PC, tablet and smartphone markets.
As demand in these areas looks set to fall, in our view, it is important when assessing Taiwan’s tech stocks to differentiate between ‘shovel providers’, and to understand which sources of demand they are serving.
Fault lines
The positive aspects of Taiwan’s innovative and entrepreneurial economy need to be considered in the context of its geography. The island is located along the Pacific ‘Ring of Fire’, a zone vulnerable to earthquakes caused by the ongoing geological confrontation between the Eurasian Plate and the Philippine Sea Plate.
Taiwan is well prepared for earthquakes, with strict building controls and good public education. However, the government decided to shut down Taiwan’s remaining nuclear power capacity following the 2011 Fukushima disaster in Japan, which resulted from a tsunami caused by an offshore earthquake.
Devoid of natural resources, this decision has left Taiwan almost totally reliant on imported energy, from coal to natural gas and oil. With around 40% of its natural gas and 70% of its crude oil coming from the Middle East, the current conflict in Iran and the disruption to supplies resulting from the effective closure of the Strait of Hormuz has put Taiwan in a tricky position8.
“Devoid of natural resources, …Taiwan [is] almost totally reliant on imported energy.”
For now, government officials have provided assurance that Taiwan has sufficient reserves and alternative supplies have been procured. Historically, the government has ensured sufficient power and water provision to semiconductor firms, even as it curbs wider use. Such fault lines maybe tested if the Strait of Hormuz remains closed for an extended period.
In recent years, Taiwan’s use of oil has declined but natural gas power generation has increased. The Iran crisis has highlighted the vulnerability of Taiwan’s energy network, and, by extension, its all-important semiconductor industry. It has also revealed the situation that Taiwan might face if the Taiwan Strait was ever blockaded by China, which seeks reunification between Taiwan and the mainland.
Given the risks associated with Taiwan’s energy security, the current crisis could prompt efforts to reduce reliance on imported fossils fuels and accelerate the adoption of domestic renewable power sources.
1 International Trade Administration, US Department of Commerce, Taiwan Commercial Guide, (trade.gov), December 2025.
2 AP News, ‘Taiwan's economy grows 8.6% in 2025, fastest in 15 years turbocharged by the AI boom’, (apnews.com), January 2026.
3 Bloomberg, ‘Big Tech to Spend $650 Billion This Year as AI Race Intensifies’, (Bloomberg.com), February 2026.
4 Digitimes, ‘Taiwan central bank revise 2027 GDP growth upward’, (digitimes.com), March 2026.
5 Ukrainian Shipping Magazine, ‘How the Taiwan Strait became the center of the struggle for international markets’, (en.usm.media), September 2024.
6 Source: Statista, March 2026.
7 M&G Investments, MSCI.com.
8 Atlantic Council, ‘The Iran war tests Taiwan’s energy resilience’, (atlanticcouncil.org), March 2026.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.
