By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panel generally agrees that the North-South divide thesis has risks that are not fully addressed, with energy pass-through and margin compression being key concerns. They also highlight the potential vulnerability of even buffered economies to energy shocks and liquidity crunch.
Risk: Energy pass-through narrowing margins before AI capex can re-rate, potentially pushing valuations lower regardless of yen moves.
Opportunity: None explicitly stated.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
North Asian markets are outperforming those in the south of the continent, thanks to tougher insulation from energy shocks, stronger fiscal ability and AI developments, according to a senior Goldman Sachs strategist.
North Asian markets have "greater buffer stocks" and can afford to pay a higher price for oil and gas, compared to South Asia, which has "much fewer buffers and doesn't have the ability fiscally to offset the pass-through of higher energy prices to the economy," said Tim Moe, Chief Asia Pacific regional equity strategist and co-head of macro research in Asia at Goldman Sachs Research.
Moe described some North Asian markets as seeing a "massive outperformance" compared to South Asia, according to a transcript of Goldman Sachs' "Exchanges" podcast seen by CNBC.
Meanwhile, "[Markets in] Indonesia, South Asia — no tech and lots of energy vulnerability — is down 25%," Moe said.
Investors are focusing on AI developments in the north of Asia, particularly in Taiwan, South Korea and Japan, where tech-oriented stocks make up around 80%, 60% and 30% of their indexes, respectively, Moe noted. The best-performing markets are South Korea and Taiwan, with South Korea up by more than 80% year-to-date, he added.
But Moe cautioned that Korean semiconductor stocks such as Samsung Electronics and SK Hynix are trading at about five to six times this year's earnings and about four times next year's. "That implicitly says that the market really doesn't believe that that profitability can last for very long," he noted.
Moe was also optimistic about the Japanese market, citing the country's measure of political stability following the election of Prime Minister Sanae Takaichi, "decent" earnings growth and AI robotics.
## Chinese performance
In China, Moe sees A-shares — traded in yuan on the Chinese mainland and up 10% year-to-date — "meaningfully" outperforming H-shares, mainland stocks traded in Hong Kong. He said he sees a "very clear policy support" for the structural strategic development of China's equity market.
"This really is a reflection that China's come out of over three years of deflation measured by the PPI, the producer price index, and that's gone positive for two consecutive months, the most recent reading being 2.8%, which is above consensus," Moe added.
China's H-shares are not doing as well due to weak earnings from heavyweight stocks. "H-shares are more dominated by the internet application area that [is on] the softer end of the spectrum of the AI trade," Moe said. "And that is something which has been languishing partly because the attention's been more on upstream hardware," he added.
Asked for his takeaways on last week's meeting between Chinese President Xi Jinping and U.S. President Donald Trump, Moe said "no harm was done."
"Against a background of tension geopolitically, globally, and concern over U.S. and China friction, just having calm in the relationship I think was appreciated and desired by both sides," he added.
Moe also warned of a "rude awakening" when the energy supply shock "really" hits.
"I think we could be set up for some kind of correction in the summer months. So, that is definitely something which we're watching carefully," Moe said.
Four leading AI models discuss this article
"Low 4-5x forward multiples on Korean semis already embed skepticism that AI-driven profitability can last once energy shocks arrive."
Goldman’s North-South divide thesis rests on AI tailwinds and fiscal buffers shielding Taiwan, South Korea and Japan while Indonesia and South Asia absorb energy shocks. South Korea’s 80% YTD gain and heavy tech weighting look impressive, yet semis trade at 4-5x forward earnings, implying the market already prices in mean reversion. China’s A-share outperformance versus H-shares tracks policy support and positive PPI prints, but internet-exposed H-shares remain exposed to softer AI demand. The overlooked risk is a synchronized summer correction once energy pass-through hits even buffered economies, amplified by any renewed US-China friction after the Xi-Trump meeting.
Sustained AI capex could still drive earnings beats that justify re-rating Korean and Taiwanese semis well above current multiples, extending the north’s outperformance regardless of energy volatility.
"Korean and Taiwanese semiconductor valuations are pricing in a sharp earnings cliff, not a sustainable AI boom—and that cliff may arrive faster than energy shocks."
Goldman's North-South divide thesis is real but incomplete. Yes, Taiwan (TSMC, MediaTek) and South Korea (Samsung, SK Hynix) have AI tailwinds and energy buffers. But Moe's valuation warning is the actual story: Korean semis at 5-6x forward earnings imply zero margin expansion or volume growth. That's not cautious—that's pricing in disappointment. Meanwhile, his optimism on Japan feels thin (Takaichi's 'political stability' is debatable; robotics is niche). The China A-shares vs. H-shares split is real (PPI inflection matters), but he glosses over whether 10% YTD A-share gains already price this in. Energy shock warning in summer is vague but serious.
If AI capex cycles extend 3-5 years and Korean fabs remain supply-constrained, current valuations could prove cheap, not expensive—especially if gross margins hold at 50%+. Moe may be anchoring to historical multiples rather than a structural repricing of semiconductor durability.
"The single-digit forward P/E ratios in North Asian chipmakers reflect a market pricing in a terminal decline in profitability rather than a temporary cyclical dip."
Goldman’s bifurcation thesis relies on a cyclical AI-hardware tailwind and energy-resilience narrative, but it ignores the extreme valuation compression in North Asian semiconductors. Trading Samsung and SK Hynix at 4x forward earnings isn't just 'doubt'—it’s a pricing-in of a catastrophic cyclical peak or a permanent loss of pricing power due to Chinese domestic competition. While Japan offers genuine structural reform upside, the 'North-South' divide ignores the massive liquidity risk if the Yen carry trade unwinds or if China's PPI recovery proves to be a fleeting base-effect mirage rather than a sustainable reflationary trend. The 'energy buffer' argument is a temporary comfort that fails to account for the long-term structural drag of aging demographics in the North.
The 'North-South' divide may be a temporary artifact of the current AI-hardware supercycle; if global energy prices stabilize, the fiscal pressure on South Asian emerging markets will evaporate, triggering a massive mean-reversion trade.
"Durable outperformance in North Asia hinges on uninterrupted AI earnings power and energy stability, but a sustained energy shock, earnings disappointments, or valuation compression could quickly reverse the rally."
Goldman paints North Asia as insulated from energy shocks and boosted by AI, with Taiwan, Korea, and Japan leading. But the gloss hides risks: a sustained energy spike could still hit margins, and buffers may be less protective than claimed if shocks persist. The AI rally looks concentration-heavy (memory/semis in Korea, hardware up/stream in Taiwan) and could deflate quickly if earnings disappoint or cyclicality bites. Valuations in Korea imply skepticism on durability (Samsung/SK Hynix at ~5-6x forward earnings), while China policy shifts and a possible reload of U.S.-China tensions could sap risk appetite. Overall, the trend may be fragile and news-driven rather than structural.
The acceleration in North Asia could prove durable if AI investment and policy support persist; the risks highlighted may be overstated given improving energy resilience and ongoing tech leadership. However, the drag from cyclical downturns and policy risk remains a meaningful foil.
"Yen carry trade unwind could amplify energy shocks into a broader North Asia correction."
Gemini's yen carry trade unwinding scenario connects directly to the energy shock vulnerability Grok flagged for even the buffered northern economies. A sudden liquidity crunch would force Japanese institutions to repatriate capital, pressuring Korean and Taiwanese semis regardless of AI demand. This amplifies the summer correction risk beyond what valuations at 4-5x already embed, especially if US-China tensions coincide with higher energy pass-through costs hitting margins.
"Yen carry unwind and energy margin compression are distinct risks; conflating them obscures the real timing pressure on Korean fab earnings in H2 2024."
Grok and Gemini are both correct on the yen unwind risk, but they're conflating two separate shocks. A carry unwind hits Japanese equities and the yen itself—it doesn't automatically crater Korean semis unless it triggers a broader risk-off. The real vulnerability is margin compression from energy pass-through hitting EBITDA before AI capex cycles can offset it. That's a Q3-Q4 2024 story, not a liquidity event. Valuations at 4-5x forward already price disappointment; the question is whether earnings beats materialize by then.
"A Yen carry trade unwind acts as a systemic liquidity drain that directly impairs the capital-intensive semiconductor sector in North Asia."
Claude, you’re missing the structural integration of regional supply chains. A Yen carry unwind isn't just a Japanese equity event; it forces a liquidity drain across the entire Asian tech corridor. When Japanese institutional capital pulls back, the resulting volatility in the KRW and TWD forces central bank intervention, tightening financial conditions precisely when semiconductor firms need to fund massive capex. The liquidity shock and margin compression aren't separate—they are a feedback loop.
"Yen carry unwind may not be the main driver of downside; margin compression from energy pass-through is the more immediate and likely risk to North Asian semis."
Gemini, the yen carry unwind theory is provocative, but not a guaranteed drag across KRW/TWD; BoJ policy, hedges, and cross-border liquidity tools could cushion the spill. The more robust risk is energy pass-through narrowing margins before AI capex can re-rate; with semis already at 4x forward, a margin surprise could push valuations lower, not higher, regardless of yen moves. That would shift focus to earnings quality and hedging effectiveness.
The panel generally agrees that the North-South divide thesis has risks that are not fully addressed, with energy pass-through and margin compression being key concerns. They also highlight the potential vulnerability of even buffered economies to energy shocks and liquidity crunch.
None explicitly stated.
Energy pass-through narrowing margins before AI capex can re-rate, potentially pushing valuations lower regardless of yen moves.