Is US Stock Dominance Ending? Institutions Eye Taiwan and Japan as New Investment Focal Points

Over the past few years, global equity capital has been heavily concentrated in the United States, driven by the AI boom that lifted tech stocks. However, as US valuations rise and global economic growth momentum shifts, investment allocations are beginning to change. Financial institutions believe Taiwan and Japan have emerged as two key markets—Taiwan benefiting from AI and semiconductor supply chain demand, and Japan supported by structural factors such as wage growth, domestic demand recovery, and corporate governance reforms, forming two distinct investment themes: 'growth' and 'value re-rating'.

Zhang Jiwen, Head of Strategy and Marketing at Nomura Asset Management, pointed out today (11th) that Taiwan's stock market still has four major growth drivers: continued expansion of AI applications, Taiwan's critical global position in the semiconductor supply chain, increasing capital expenditures by cloud service providers, and corporate earnings growth.

From a supply-demand perspective, ongoing expansion of AI infrastructure continues to strain supply for key components such as CoWoS advanced packaging, glass fiber cloth, and memory. If demand persists, related industries and corporate profits will remain supported.

Compared to US AI leaders that dominate end-user applications and platforms, Taiwanese companies are deeply embedded in the AI hardware supply chain—playing vital roles in wafer fabrication, advanced packaging, testing, high-speed transmission, thermal management, and servers. In other words, even as global AI investment remains focused on large US tech firms, increased AI capital spending will flow through the supply chain to benefit Taiwanese companies.

However, Taiwan's strength is also a risk. Electronics stocks make up an extremely high proportion of the Taiwan stock index, making market performance highly sensitive to semiconductor and AI industry cycles. While this industrial concentration helps boost earnings during periods of strong AI capex, it could also amplify stock price volatility if markets begin re-evaluating AI investment returns.

In contrast, the Japanese market offers a different investment logic. Zhang Jiwen noted that Japan's economy is gradually emerging from decades of low growth and deflation, with rising wages and recovering consumption improving domestic demand momentum. At the same time, the Japanese government is pushing strategic investments in semiconductors, AI, and energy transition, while corporate governance reforms are encouraging companies to improve capital efficiency and increase shareholder returns.

As a result, Japan's recent stock rally is no longer driven purely by market liquidity, but increasingly supported by fundamental improvements such as better corporate earnings, improved capital efficiency, and structural economic transformation.

Notably, although Japanese stocks have hit record highs, Nomura Asset Management believes high prices do not necessarily mean overvaluation across the board. As Japanese firms continue to improve capital allocation and domestic conditions strengthen, the market may further reflect the value created by corporate reforms and economic transformation.

From an asset allocation perspective, Taiwan and Japan offer complementary industrial structures. Liu Conglin, manager of the Nomura Taiwan-Japan Preferred Multi-Asset Fund, pointed out that Taiwan's market is heavily concentrated in semiconductors and electronics, while non-financial and non-electronics sectors make up nearly 70% of the Tokyo Stock Price Index, offering greater industrial diversity. Investing in both markets can therefore offset Taiwan's high sector concentration.

Statistics show that over the past five years, a combined Taiwan-Japan investment strategy delivered higher cumulative returns and better risk-adjusted performance than US or global equities. This reflects the rising importance of Taiwan and Japan in global portfolios, driven by AI supply chain growth and Japan's corporate reforms.

Beyond equities, bonds can also play a key role in reducing overall portfolio volatility. Liu Conglin noted that in addition to Taiwan and Japanese equities, investors can include Japanese corporate USD bonds, global investment-grade bonds, high-yield bonds, and emerging market debt. Through dynamic allocation between stocks and bonds, investors can better navigate different market environments.

Against this backdrop, Nomura Asset Management will launch its new 'Nomura Taiwan-Japan Preferred Multi-Asset Fund' from August 31 to September 4. The fund adopts a dynamic stock-bond allocation strategy, with 50–70% in equities and 30–50% in bonds, focusing on Taiwan's growth potential and Japan's value re-rating. By diversifying across multiple bond assets, the fund aims to balance income generation and risk control, helping investors capture dual-core opportunities in Taiwan and Japan as the global market evolves toward a multi-driver growth model.