South Korea and Taiwan have surged as Asia's top stock markets this year, driven by the global AI trade. However, foreign investors are pulling money from both markets while pouring funds into Japan. Overseas investors have dumped nearly $70 billion of Korean shares, and Taiwanese equity flows have turned negative, according to Bloomberg data.

Japan attracted $73.6 billion in inflows as of May 22, highlighting a stark divergence in investor preference. Goldman Sachs strategists recently raised targets for both Korean and Taiwanese equities, projecting the Kospi could rise 36% and Taiwan's benchmark gain another 10% in the coming year. The rally has concentrated heavily on semiconductor giants Samsung, SK Hynix and Taiwan Semiconductor, raising concerns about its narrow foundation.

This investor retreat signals growing skepticism about the sustainability of AI-driven gains in the region. The concentration on just a few chipmakers, combined with rapid financial leverage buildup, makes these markets vulnerable to correction. Global investors appear to favor Japan's market depth, diversity, and corporate governance reforms over the concentrated tech bets in Korea and Taiwan.

As one Singapore-based fund manager noted, Japan offers broader investment opportunities compared to Korea's market, which feels dominated by just two major players despite superior performance. This shift reflects changing priorities among international investors seeking diversified exposure rather than single-theme rallies.