The Asian link

The AI race is taking place also outside the US and China. South Korea and particularly Taiwan are the epicenters of the movement, particularly in terms of hardware. And their respective stock markets are reflecting that reality. Taiwan stock market cap has surpassed the UK, and South Korea’s has surpassed Germany’s. Think about that for a second: with 23 million people, Taiwan has been able to create more wealth than the financial powerhouse UK, with 68 million people. And the automobile powerhouse, Germany, has been surpassed by South Korea. Of course that has come with its embedded risks: TSMC accounts for roughly 50% of the Taiwan stock market and margin debt in South Korea has more than doubled since last year for an eye popping $37Bn, with Samsung being more than 25% of the market. The buffet favorite indicator, market cap to gdp, is 240% for Taiwan and 120% for South Korea. And both markets are going up in parabolic fashion. And the link to the U.S.? TSMC makes 90% of the chips that go into the U.S. data centers. And South Korea makes the RAM chips, among other things. And the link to the Iranian conflict? Both TSMC and Samsung need Helium to manufacture chips. And the majority of it travels through the strait of Hormuz. Both Asian economies are highly dependent on oil imports as well. But the link goes deeper. Combined, both economies have $1Tn in dollar reserves, mostly in US treasuries. I wonder what can go wrong if Iran decides to continue blocking Hormuz.

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