Forget FXI. The South Korea Fund Beating China’s AI Trade Charges 19% Less

The iShares China Large-Cap ETF (NYSEARCA:FXI) is the default way most U.S. investors play China’s AI trade. FXI holds the country’s biggest tech names, Alibaba, Tencent, Baidu, Meituan, and JD, which is exactly what investors want when they bet that China’s hyperscalers will mirror the U.S. AI capex cycle. The case for owning FXI has always rested on cheap valuations and the assumption that Beijing’s policy support will eventually pull those large caps higher. That logic still has merit, but a neighboring fund is doing the job better at lower cost, and the gap has widened sharply over the last 12 months.

What FXI Is Actually Delivering

The structural problem is exposure quality. FXI’s holdings are platform companies and consumer internet names that buy AI chips. They are downstream users of the AI build-out and sit within a regulatory regime that can rewrite their economics overnight. That is a real constraint when global capital is paying up specifically for hardware exposure to AI infrastructure.

EWY Owns the Picks and Shovels

The iShares MSCI South Korea ETF (NYSEARCA:EWY) holds Samsung Electronics and SK Hynix as its two largest positions. SK Hynix supplies the high-bandwidth memory stacked next to every leading-edge AI accelerator, and Samsung is the second source. That makes EWY one of the cleanest listed proxies for the hardware layer of the AI trade, rather than the application layer that FXI is exposed to.

The fee math is straightforward. EWY charges a 0.59% expense ratio as of its May 4, 2026, prospectus. That is roughly 19% less than FXI’s 0.73%, or 14 basis points a year on every dollar invested. On a $50,000 position, that is $70 a year retained inside the fund rather than paid out in fees, compounding for as long as the position is held.

The Tradeoffs Worth Naming

The swap carries real tradeoffs that investors should weigh before treating EWY as a like-for-like FXI replacement. The swap moves country risk from China to South Korea, currency exposure from the yuan to the won, and sector mix from internet platforms to memory semiconductors. EWY is also more concentrated at the top: Samsung and SK Hynix together drive most of the fund’s daily moves, so a turn in the memory cycle hits harder than it would on a broad index. EWY fell 12.25% on June 23 alone, a reminder that the same concentration that drove the rally also amplifies drawdowns.

And the run has been large. After an 187% one-year total return, anyone rotating in today is buying after the move, not before.

How to Think About the Swap

In a tax-advantaged account, selling FXI to fund an EWY position is mechanically simple, and the fee savings start immediately. In a taxable account, anyone sitting on FXI losses can harvest them against gains elsewhere while rotating the proceeds. Investors who want to keep some China beta can split the position, holding partial FXI exposure for any policy-driven rebound while routing the rest to EWY for hardware AI exposure. The decision turns on which AI trade an investor actually wants to own: the platforms that buy the chips, or the company that builds the memory inside them.