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The global artificial intelligence rally is reshaping stock markets across Asia, and Taiwan is emerging as one of the biggest winners.

Powered by a massive surge in semiconductor giant Taiwan Semiconductor Manufacturing Co. (TSMC), Taiwan has overtaken India to become the world’s fifth-largest stock market by value.

According to data compiled by Bloomberg, Taiwan’s market capitalisation reached $4.95 trillion as of Monday, marginally ahead of India’s $4.92 trillion. The latest rankings place Taiwan behind only the US, mainland China, Japan and Hong Kong.

One Company Driving an Entire Market

Taiwan’s rapid rise is closely tied to the extraordinary rally in TSMC, the world’s largest contract chipmaker and one of the biggest beneficiaries of the global AI investment frenzy.

The company now accounts for nearly 42 per cent of Taiwan’s benchmark stock index, a level of concentration rarely seen in major global markets. TSMC shares have jumped 49 per cent this year as demand for AI-linked chips and semiconductor infrastructure continues to soar.

As companies worldwide race to build AI systems, investors are increasingly pouring money into businesses at the centre of the semiconductor supply chain, and Taiwan sits right in the middle of that boom.

Why AI Is Changing Global Capital Flows

Markets with strong exposure to chip manufacturing and technology hardware are attracting disproportionate investor interest, while countries with limited direct exposure to the AI buildout are struggling to keep pace.

“Taiwan’s rising market capitalisation is fundamentally a reflection of its heavy concentration in tech hardware, which is currently at the centre of the AI investment cycle,” Yi Ping Liao, a fund manager at Franklin Templeton, said.

“Markets with limited exposure to tech hardware are increasingly being overshadowed by tech hardware-heavy markets such as Taiwan and Korea,” Liao added.

South Korea has also benefited from the same trend, with investors increasingly favouring semiconductor and electronics-heavy economies.

India Losing Ground With Foreign Investors

India, meanwhile, has been battling a very different set of challenges.

Elevated energy prices, slowing corporate earnings growth, high valuations and a weakening rupee have all weighed on investor sentiment this year.

Foreign institutional investors have pulled nearly $24 billion out of Indian equities so far in 2026 as global funds redirected capital towards AI-focused markets such as Taiwan and South Korea.

India’s benchmark market index has fallen around 8 per cent this year and is heading towards its first annual decline after a decade-long rally.

India’s weight in the MSCI Emerging Markets Index has also dropped sharply to around 12 per cent from nearly 19 per cent last year.

Taiwan’s Regulatory Push Adds Momentum

Taiwan’s regulators have also added fuel to the rally. Last month, Taiwan’s financial regulator increased the limit domestic funds can invest in a single stock.

Under the revised framework, funds focused solely on Taiwanese equities can now allocate up to 25 per cent of their net assets to a listed company whose weighting exceeds 10 per cent in the Taiwan Stock Exchange.

The earlier limit stood at 10 per cent.

At present, only TSMC qualifies under the new rules.

JPMorgan Chase & Co. estimates that the regulatory changes could potentially attract more than $6 billion in additional inflows into Taiwanese markets.

India’s Economy Still Far Larger

Despite Taiwan overtaking India in stock market capitalisation, India’s broader economy remains significantly larger. According to International Monetary Fund estimates, India’s economy is valued at around $4.15 trillion and continues to rank among the world’s fastest-growing major economies.

Taiwan’s gross domestic product, by comparison, stands at around $977 billion. Analysts also point out that domestic participation in Indian equities continues to remain strong despite foreign outflows.

The latest shift in market rankings highlights how artificial intelligence is rapidly redrawing the map of global investing.

Countries with strong semiconductor ecosystems and direct exposure to AI infrastructure are attracting unprecedented investor enthusiasm.