TAIPEI — Taiwan has become the world’s fifth-largest stock market, surpassing India, with a total market value of US$4.95 trillion. Only the U.S., China, Japan, and Hong Kong have larger stock markets.

The surge is driven by strong performance in Taiwan’s semiconductor sector and rising global investment in artificial intelligence. Taiwan Semiconductor Manufacturing Co. (TSMC), the island’s largest company, is up 46% in the current year and accounts for approximately 42% of Taiwan’s benchmark stock index. “Taiwan’s rising market capitalization is fundamentally a reflection of its heavy concentration in tech hardware, which is currently at the center of the AI investment cycle,” said Yi Ping Liao, a fund manager at Franklin Templeton.

Taiwan’s economy grew at an annual rate of 13.7% in the first quarter, its fastest pace since 1987. This growth coincides with a sharp rise in exports, which increased by 62% year-on-year in March and by 39% in April. Over the first four months of the year, Taiwan exported $263.35 billion in goods—a 47.8% increase compared to the same period last year.

Semiconductor shipments from Taiwan rose by 40.5% year-on-year, reflecting strong global chip demand. The machinery and electrical equipment category, which makes up about 84% of Taiwan’s total exports, expanded by 48.7% year-on-year. Taiwan is structurally aligned with the AI cycle due to its dominant position in semiconductor manufacturing.

Strong chip demand has outweighed weak domestic spending and the negative impact of inflation linked to the Iran war on household confidence in Taiwan. The financial regulator has also adjusted investment rules to support market momentum, raising the cap on how much a domestic equity fund can invest in a single stock to 25% of net assets—from a previous limit of 10%—for companies with a weighting above 10% on the Taiwan Stock Exchange. TSMC is the only company that currently qualifies for the increased cap. Taiwan’s population of 23 million is less than 1/60th of India’s, yet its stock market has now surpassed India’s in total value.