In May, foreign funds ended a two-month streak of selling Taiwanese equities, buoyed by renewed optimism in artificial intelligence. Overseas investors purchased $2.7 billion worth of Taiwanese shares, reversing the trend seen in March and April when stocks were being sold off amid concerns raised by Taiwan Semiconductor Manufacturing Co. about consumer market weaknesses and a shift of funds towards South Korea.

The sentiment surrounding chip stocks globally has improved, especially following optimistic forecasts from AI chipmaker Nvidia. Taiwan’s strong position in the AI value chain is set to receive further reinforcement this week as major tech players converge on the island for its annual electronics showcase event. Despite stretched valuations, Taiwan remains Asia’s prime beneficiary of the AI boom.

Among emerging Asian countries excluding China, Taiwan saw the largest influx of foreign capital in May. This influx contributed to a rally in its stock benchmark, propelling the index to a record high late last month and positioning it as one of Asia’s top performers this year.

Despite these positive trends, there remains room for continued foreign investment, particularly in Taiwan Semiconductor Manufacturing Co. (TSMC), which holds the largest weight in the index at 32%. Foreign ownership of TSMC is still below the record high of 80% seen in 2017.

However, potential delays in Federal Reserve rate cuts could dampen the tech rally, and any escalation in cross-strait tensions might discourage foreign interest in Taiwan’s stock market.

The resilience of Nvidia and the ongoing AI/server theme continue to bolster related stocks in Taiwan. Additionally, Taiwanese stocks remain attractive to foreign investors as they are comparatively cheaper than their U.S. counterparts.