Foreign Investors Concentrate Selling on Taiwan and South Korea AI Stocks as Asian Capital Enters a Rebalancing Phase

In the first half of 2026, global equity markets were largely driven by AI capital expenditure. From major U.S. cloud service providers and AI servers to Taiwan’s semiconductor supply chain and South Korea’s memory sector, capital became highly concentrated in AI infrastructure beneficiaries, making Taiwan and South Korea two of the strongest-performing markets in Asia. However, after entering July, foreign investors’ attitude toward Asian technology stocks began to shift. South Korea, Taiwan, and Japan, all markets that had rallied strongly earlier, came under selling pressure, reflecting that capital is now rebalancing away from crowded AI trades.

The main drivers behind this selling pressure include profit-taking after sharp gains, deleveraging of leveraged positions, and regional capital rotation. Taiwan and South Korea AI stocks remain important supply chain pillars for global AI infrastructure, but in the short term, they have entered a phase of high-level consolidation and position adjustment.

Taiwan and South Korea Become the Core of Foreign Selling as AI Stock Gains and Position Concentration Create Pressure

From the perspective of fund flows, recent foreign selling in Asia has been concentrated mainly in South Korea and Taiwan. According to CTBC Investments, emerging Asian equities saw a net outflow of US$15.65 billion last week, with South Korea seeing foreign net selling of US$12.96 billion and Taiwan seeing net selling of US$3.52 billion. During the same period, foreign investors bought about US$790 million in Thailand and about US$300 million in India, showing that capital is shifting from markets that had previously posted stronger gains toward lower-base or relatively more diversified markets.

Year to date, although Taiwan and South Korea have continued to face foreign selling pressure, their benchmark equity indices remain among the strongest performers in Asia. Data as of July 8 showed that Thailand was the only emerging Asian market to record foreign net buying this year, at around US$1.27 billion. South Korea saw the largest foreign net selling, at US$100.16 billion, followed by India at US$28.7 billion and Taiwan at US$24.3 billion. Nevertheless, the Korea Composite Stock Price Index (KOSPI) and the Taiwan Weighted Index (TAIEX) have still risen 71.9% and 57.9% year to date, respectively, indicating that foreign selling and overall stock market performance have not moved fully in sync.

This phenomenon of “foreign investors selling while indices remain strong” reflects that Taiwan and South Korea have entered a stage of divergence between foreign and domestic investors. From a global asset allocation perspective, foreign investors are reducing overly concentrated AI positions. In Taiwan, however, domestic investment trusts have stepped in to absorb selling pressure, while in South Korea, retail investors have provided buying support, preventing the market from immediately shifting into a one-way decline due to foreign selling.

Taiwan Stock Selling Pressure Expands in Early July, but Investment Trusts Buy Against the Trend

Taiwan is one of the most representative markets in this round of capital rebalancing. On July 7, affected by weakness in Asian technology stocks, the Taiwan stock market saw an intraday swing of more than 1,500 points and closed down 1,077.28 points, or 2.31%. From the perspective of institutional flows, selling pressure that day did not come only from foreign investors. Proprietary traders’ hedging positions also saw significant adjustment, pushing the combined net selling by the three major institutional investors close to NT$100 billion and amplifying market volatility.

However, Taiwan did not see domestic capital withdraw at the same time. From July 8 to July 9, foreign investors continued to sell Taiwanese stocks, but investment trust buying expanded at the same time. This shows that domestic institutions were still absorbing some positions during the pullback, leaving Taiwan’s market in a short-term pattern of “foreign selling, investment trust buying, and high-level index consolidation.”

From a sector perspective, foreign investors’ adjustment in Taiwan does not mean they are simply selling all risk assets. On July 8, foreign buying was tilted toward financial stocks, airlines, and some lower-base electronics names, indicating that capital may be shifting from high-volatility technology stocks toward relatively defensive or lower-base targets. Investment trust buying also showed a diversified allocation pattern. On July 7 and July 9, their top net-buying targets covered financials, telecoms, airlines, plastics, semiconductor packaging and testing, memory, passive components, PCBs, and ETFs, indicating that Taiwan’s market is entering a more evident sector rotation phase during high-level consolidation.

South Korea Faces More Severe Selling Pressure as Deleveraging Amplifies Technology Stock Volatility

Compared with Taiwan, South Korea has seen more severe volatility recently. In the first half of the year, South Korean equities benefited from AI and high-bandwidth memory demand, with large technology stocks such as Samsung Electronics and SK Hynix posting sharp gains. This also made the KOSPI highly dependent on a small number of heavyweight stocks. When the market began to question the sustainability of AI capital expenditure, or when investors started reducing technology stock exposure, South Korean memory stocks, which had seen the strongest gains and the most concentrated positioning, naturally became the first targets of adjustment.

The reason selling pressure in South Korea was amplified was not only foreign investor selling, but also retail leverage, margin positions, and leveraged ETFs linked to individual stocks. These instruments amplify buying when stock prices rise, but when prices reverse lower, they can also create passive selling through rebalancing and stop-loss mechanisms. In other words, the recent correction in South Korean technology stocks looks more like deleveraging after an overly concentrated trade.

This is also the biggest difference between the current correction in Asian technology stocks and a typical cyclical downturn-driven selloff. If the issue were a fundamental reversal, the market would usually see simultaneous downward revisions to corporate earnings and demand expectations. At present, however, the market is more focused on whether AI capital expenditure can continue, whether valuations have already priced in too much optimism, and whether capital has become overly concentrated in a small number of large semiconductor and memory stocks.

Japan Also Sees Foreign Selling as Asia’s Earlier Winners Enter Adjustment Together

Foreign investor adjustment has not occurred only in Taiwan and South Korea. Data from Japan’s Ministry of Finance showed that in June 2026, foreign investors sold a net JPY 2.9911 trillion in Japanese equities, marking their first reduction in Japanese stocks in three months and the second-largest monthly net selling so far this year. Foreign investors also heavily sold JPY 2.4894 trillion in Japanese medium- and long-term bonds, the largest monthly net selling in 41 months. Including short-term bonds, total foreign outflows from Japan’s financial markets reached JPY 9.5718 trillion in June.

It is worth noting that the Nikkei 225 still rose 5.6% in June and reached a record high on June 25. This is similar to the recent situation in Taiwan, where the index has still found support despite foreign selling. It shows that foreign selling does not necessarily lead to an immediate market trend reversal, especially when domestic capital, corporate buybacks, passive flows, or fundamental expectations can still provide support. Taiwan, South Korea, and Japan are all important beneficiaries of AI, semiconductors, or advanced manufacturing supply chains, and they had all posted strong earlier gains. Therefore, when global capital needs to reduce concentration risk, these markets naturally become priority targets for adjustment.

Three Main Lines Behind Capital Rebalancing

Based on recent foreign fund flows and market performance, this shift in Asian capital can be divided into three main lines.

1. AI trading is shifting from one-way momentum buying to a phase of earnings and valuation verification. In the first half of the year, capital flowed heavily into semiconductors, memory, AI servers, and data center supply chains. After entering July, however, investors began reassessing the sustainability of AI capital expenditure, especially whether major cloud service providers can continue expanding investment, whether related orders can translate into corporate earnings, and whether stock gains have already priced in future growth.
2. Foreign capital is shifting from highly concentrated markets toward lower-base or relatively defensive assets. South Korea and Taiwan have high exposure to AI heavyweight stocks and had led gains earlier, making them key targets for foreign profit-taking. Thailand and India, by contrast, received some capital inflows because their earlier gains were relatively more limited. Similar rotation has also appeared within Taiwan. Although foreign investors were net sellers overall, they still bought some financials, airlines, and lower-base electronics names.
3. Domestic capital support has become a key source of resilience for Asian equities. Taiwan’s investment trusts have continued to buy, while South Korean retail investors have bought against foreign selling pressure, showing that Asian markets are not fully driven by foreign capital alone. As long as corporate earnings expectations do not see clear downward revisions, domestic capital may continue to provide support during pullbacks and help indices remain in high-level consolidation.

What to Watch Next: AI Earnings Calls, Foreign Selling, and Whether Domestic Buying Can Stay Balanced

Over the next few weeks, the key issue for Asian AI stocks will be whether fundamentals can keep up with share price gains. For Taiwan, the earnings call of the leading foundry will become an important window for the market to assess AI demand, advanced processes, advanced packaging, and customer capital expenditure. If corporate guidance and order outlooks can continue to support high-growth expectations, foreign selling pressure may gradually shift from trend-driven adjustment to position rotation within a range-bound market. However, if the earnings call sends a conservative signal, adjustment pressure on high-valuation AI stocks may continue.

For South Korea, memory pricing, HBM supply and demand, Samsung and SK Hynix capital expenditure, and the pace of leveraged position unwinding will determine whether technology stocks can stabilize. If margin positions and leveraged ETF selling pressure have not yet been fully digested, short-term volatility in South Korea may remain higher than in other Asian markets.

Recent foreign selling in Taiwan, South Korea, and other Asian markets that had rallied strongly shows that the market is entering a new phase of “verifying earnings, valuations, and capital concentration.” Taiwan and South Korea AI stocks remain indispensable supply chain pillars for global AI infrastructure, but after the strong gains in the first half of the year, capital needs to rebalance positions, and the market also needs to wait for corporate earnings and order data to confirm the next stage of growth momentum. Therefore, Asian technology stocks may remain in high-level consolidation in the short term, while foreign selling and domestic buying continue to pull against each other. In the medium term, the markets and sectors that can continue to outperform after capital rebalancing will depend on whether companies can convert AI demand into stable revenue, margins, and cash flow.