Taiwan's stock market has been the best performer in Asia this year, and it's great news for investors in small-cap and tech-focused funds, which are both nearing 100% returns.

• Taiwan's main index led Asian markets this year, ahead of South Korea and Japan.
• Small-cap Taiwan stock funds averaged a 96% return, with tech-focused funds close behind at 95%, both driven by AI-related demand.
• The AI rally is shifting from broad, across-the-board gains to picking individual winners, with chip packaging materials, passive components, and optical communication parts now in focus alongside semiconductors.
• Fund managers suggest investors use funds rather than single stocks to spread risk, since small-cap stocks are no longer all moving together.
• Taiwan's market has also seen a sharp pullback from its early-October highs, with one analyst warning of possible further selling before the island's late-November local elections, while still expecting long-term AI winners like TSMC to keep growing.

Outlook: Expect more stock-picking within AI-related industries rather than broad gains, with near-term volatility possible around the election and continued strength expected for chipmakers like TSMC over the long run.