Summary

Paul discussed how the semiconductor boom is driving exceptionally strong growth in Taiwan and Korea, but through very different channels. Korea’s cycle is primarily a price-driven memory chip boom, resembling a commodity upswing, while Taiwan’s growth is mainly volume and productivity-led, supported by TSMC and the broader AI supply chain. He argued that the benefits are already feeding into both economies through higher capital expenditure, wages, bonuses, equity wealth and government revenues, challenging the view that the boom is confined to a narrow part of the economy. He expects these dynamics to create pressure for stronger real exchange rates and higher interest rates. However, with the Korean won and Taiwan dollar remaining unusually weak despite strong growth, currencies are not absorbing the resulting inflationary pressure. Paul therefore believes central banks and bond yields may need to do more of the adjustment, with current market pricing, particularly in Taiwan and Korea, still appearing too conservative. The principal risk is a sharp reversal in US AI and semiconductor demand, although he considers it unlikely that the domestic effects of the boom can be fully sterilised through overseas investment and capital outflows.

Topics