South Korea’s ETF Market Surges Toward Regional Dominance as Inflows Overtake Taiwan

The $239 Billion Shift: Seoul Poised to Reclaim ETF Crown

South Korea’s exchange-traded fund market stands at the threshold of a historic milestone. After six years of trailing behind Taiwan, assets in Korean ETFs have surged to $239 billion, placing the market within striking distance of overtaking its regional rival for the first time since 2019. According to data compiled by Bloomberg Intelligence, the gap between the two tech-heavy Asian markets has narrowed to just $11 billion as of late February 2025.

The velocity of this ascent has caught market observers by surprise. Korean ETFs have absorbed average weekly inflows of $1.2 billion since the beginning of 2025, a figure that dwarfs Taiwan’s $330 million weekly average by roughly fourfold. Of the approximately $95 billion added to Korean ETF assets this year, nearly 57% has come from fresh capital inflows rather than market appreciation, according to Bloomberg Intelligence analyst Rebecca Sin. This organic growth stands in stark contrast to Taiwan’s market, where only 41% of asset growth has derived from new money, indicating a heavier reliance on price gains.

Rebecca Sin, an analyst at Bloomberg Intelligence, projected the timeline for this shift. The forecast carries significant weight beyond mere statistics, as ETF assets serve as a barometer for both retail participation and international investor confidence.

“South Korea will overtake Taiwan in ETF AUM by May, signalling a further reduction of the Korea discount.”

The prediction reflects structural improvements in Korean capital markets rather than temporary trading phenomena.

Government Policies and Corporate Reform Fuel the Rally

The surge in Korean ETF assets extends beyond favorable market conditions. Seoul has implemented aggressive government-led policies designed to revitalize domestic capital markets and address long-standing valuation concerns. The “Korea discount” refers to the phenomenon where Korean stocks trade at lower valuations than global peers due to governance issues, regulatory opacity, and geopolitical risks. Recent regulatory reforms targeting these structural weaknesses have begun restoring international confidence.

Jason Yu, head of product strategy and development at Samsung Asset Management, stressed the role of retail investors in this transformation.

“Strong inflows of retail investors into ETFs are driving rapid market expansion. Products that were previously not permitted are expected to be introduced, helping in further shrinking of the Korea discount.”

Yu noted that regulatory evolution allowing previously restricted products promises to accelerate market development further. South Korea’s Financial Services Commission has pushed initiatives to strengthen shareholder rights, improve corporate transparency, and incentivize dividend payments. These measures address decades-old complaints from foreign investors regarding the opaque “chaebol” conglomerate structures that dominate the Korean economy. As these reforms take hold, the valuation gap between Korean equities and their global counterparts has begun compressing, creating a virtuous cycle where rising prices attract additional ETF inflows.

The Semiconductor Supercycle and AI Demand

While structural reforms provide the foundation, the immediate catalyst for Korea’s ETF boom lies in the global artificial intelligence revolution. The nation stands at the epicenter of the memory chip shortage gripping the data center industry, with Samsung Electronics and SK Hynix commanding dominant positions in high-bandwidth memory (HBM) and advanced DRAM technologies essential for AI computation.

Shares of these semiconductor giants have sharply outperformed Taiwan Semiconductor Manufacturing Company over the past year, propelling the benchmark Kospi index to remarkable heights. After a world-beating 76% surge in 2025, the index has climbed an additional 22% in early 2026. This performance enabled the Korean equity market to surpass Germany in total capitalization last month, vaulting into the world’s top ten largest markets. Taiwan’s Taiex Index, by comparison, has risen 9.8% year-to-date, securing the eighth position globally.

The AI-driven demand has created a bifurcation in Asian tech exposure. While Taiwan’s TSMC excels in logic chip manufacturing and foundry services, Korean firms dominate the memory segment where shortages have become most acute. This positioning has funneled investment flows into Korean equity ETFs as investors seek direct exposure to the AI hardware buildout. Volatility remains a concern, however. The Kospi has experienced intraday slides exceeding 4% on two occasions this month alone, reflecting investor nervousness about the sustainability of AI capital expenditure and potential oversupply risks in the memory sector.

Active Management and Retail Enthusiasm Define Korea’s Market

South Korea’s ETF ecosystem distinguishes itself from global peers through its embrace of active management. According to J.P. Morgan Asset Management, Korean active ETFs constitute approximately 31% of total ETF assets, the highest percentage globally. These products attracted 33% of total flows in 2024, though this represents a moderation from the previous year when active strategies captured over 80% of inflows.

Nick Kim, Asia Pacific ETF specialist at J.P. Morgan, noted that the number of active ETFs in Korea has more than doubled since 2022.

“We are seeing many Korean ETF issuers launching more ETFs focused on foreign assets and actively managed strategies.”

Kim explained that active ETFs now hold roughly 80.4 trillion won ($57.2 billion), representing 34.7% of overall ETF assets. Korean retail investors demonstrate distinctive behavioral patterns compared to their Taiwanese counterparts. They utilize leveraged and inverse ETFs tactically at the highest rate globally, with these products representing 9% of total AUM. Additionally, thematic ETFs tracking artificial intelligence, defense technologies, and commodities such as gold have gained substantial popularity.

Nick Kim described the thematic drivers behind asset growth.

“Thematic and foreign market-focused ETFs contribute to such growth. AI and big tech have emerged as popular investment themes, while dividend theme remains an evergreen trend.”

This retail-driven expansion has structural effects for Korea’s broader asset management industry. ETFs have increased their share of the mutual fund market from 9.5% to 15.5% over the past two years, steadily eroding the dominance of traditional investment trusts. Industry observers attribute this shift to lower overall fees and the seamless integration of ETFs into digital trading platforms favored by younger investors.

Taiwan’s High-Dividend Challenge

While Korea ascends through diversified expansion, Taiwan’s ETF market faces structural constraints stemming from its singular focus on income generation. Taiwan has emerged as the largest bond ETF market in Asia, with fixed-income products reaching NT$3.09 trillion ($96 billion) by late 2024, comprising 48% of total ETF assets. The market has become dominated by retail investors seeking high-dividend yields and U.S. Treasury exposure.

Ahmed Ibrahim, head of ETF solutions for Asia Pacific at State Street Global Advisors, described Taiwan’s retail-driven expansion.

“The market is super-charged by retail investors. We believe ETF growth will continue, as a growing percentage of the total investing public uses the investment vehicle for wealth accumulation and income generation.”

This concentration presents both strengths and vulnerabilities. Taiwan’s ETF assets grew 54% last year to approximately $196.5 billion, with the number of ETF beneficiaries expanding by 5.42 million to reach 14.11 million total investors. However, the market’s heavy tilt toward high-yield investments leaves it exposed to interest rate fluctuations and shifts in U.S. Federal Reserve policy.

Rebecca Sin of Bloomberg Intelligence described Taiwan’s struggle as an inability to find alternatives to the high-dividend rush that has consumed investor attention. The Taiwan Financial Supervisory Commission has responded by approving active ETFs and passive multi-asset ETFs, hoping to diversify products. Market participants expect at least five asset managers to launch active ETFs in Taiwan during 2025, potentially recapturing market share lost to passive products.

The contrast in growth composition proves telling. Korea’s 57% inflow-driven expansion suggests deepening market participation and sustainable investor commitment. Taiwan’s 41% inflow ratio, while respectable, indicates greater dependence on valuation expansion rather than new capital commitment. As global AI trade volatility increases, this distinction may determine which market proves more resilient during correction phases.

The Asia Pacific ETF Landscape Reshapes

The Korean-Taiwanese rivalry unfolds against a backdrop of explosive growth across Asia Pacific ETF markets. State Street predicts regional assets will grow 30% in 2025, potentially reaching $2.2 trillion. China is expected to overtake Japan as the region’s largest ETF market, with assets exceeding $700 billion driven by state-sponsored purchases and regulatory mandates requiring mutual fund firms to increase equity holdings by 10% annually.

Korea’s ascent has already reshuffled regional rankings. The market recently overtook Australia to become the fourth largest in Asia Pacific, trailing only Japan, China, and Taiwan. With active ETFs continuing to drive innovation and retail participation expanding across demographic boundaries, Korea appears positioned to challenge for the third position before year-end.

Global trends support this regional expansion. The worldwide ETF industry absorbed a record $1.9 trillion in 2024, with total assets reaching $14.7 trillion. Active strategies captured 27% of global flows despite representing only 9% of total AUM, suggesting a structural shift toward tactical management within the ETF wrapper. This global appetite for active management plays directly to Korea’s existing market strengths.

However, risks loom on the horizon. Potential changes to U.S. distribution fee structures could pressure ETF expense ratios, while sustained volatility in technology shares may test retail investor resolve. Market watchers caution that the AI trade faces mounting skepticism regarding capital expenditure sustainability, with recent intraday swings in the Kospi serving as warning signals. The structural improvements in Korean corporate governance and the secular growth in regional ETF adoption suggest that even cyclical corrections may prove temporary setbacks rather than trend reversals.

The Bottom Line

• South Korean ETF assets have reached $239 billion, closing the gap with Taiwan to just $11 billion, with analysts predicting an overtaking by May 2025.
• Average weekly inflows of $1.2 billion into Korean ETFs quadruple Taiwan’s $330 million, with 57% of Korean asset growth driven by fresh capital versus 41% in Taiwan.
• Government-led market reforms targeting the “Korea discount” combined with semiconductor supercycle profits from AI demand have catalyzed the surge.
• Korea leads globally in active ETF adoption at 31% of total assets, while retail investors utilize leveraged products at unprecedented rates.
• Taiwan’s market remains dominated by high-dividend and bond ETFs, prompting regulatory approval of active strategies to diversify products.
• The Asia Pacific ETF market is projected to grow 30% in 2025, with China expected to surpass Japan as the region’s largest market.