* Taiwan stocks down nearly 6%, hit 5-week low

* South Korea markets closed, down 9% over the week

* Malaysia's economy grew 5.8% in Q2 - advance estimate

* Rupiah appreciates to two-week high of 17,935

By Sherin Sunny

July 17 (Reuters) - Asian equities dropped for a second day on Friday, with Taiwan bearing the brunt of a chip-stock selloff, as record AI-driven earnings failed to meet lofty investor expectations, while the volatile South Korean equity markets were shut for a holiday.

The MSCI EM Asia equities index slumped as much as 2.3%, with Taiwanese stocks, which make up nearly 33% of the index, dropping nearly 6% to a five-week low. The MSCI gauge has lost nearly 5% in two sessions so far.

The semiconductor-heavy Taiwanese benchmark declined for a second day, with TSMC, the world's top contract chipmaker and a key Nvidia ( NVDA ) and Apple ( AAPL ) supplier, losing more than 5% to its lowest in nearly three weeks, despite record quarterly profit.

"Taiwan is one of the cleanest liquid proxies for AI chip demand. When positioning is crowded, even a strong result can trigger profit-taking if the upside surprise is not enough," said Billy Leung, investment strategist at Global X ETFs Australia.

Investors are taking another step towards scrutinising chipmakers' ability to monetise, said Glenn Yin, director of research at ACCM, adding that despite TSMC's record quarterly profit, investors are focused on higher capital expenditure and overseas expansion costs.

"In other words, beating the expectation is not sufficient unless guidance is also dialled up to justify those investments."

The chip-heavy South Korean benchmark KOSPI ended the week nearly 9% in the red on Thursday, rounding off a turbulent week of sharp swings in memory chipmakers, the first rate hike in over three years, and regulatory intervention in single-stock leveraged funds that are behind much of the upheaval.

In Singapore, Southeast Asia's financial hub, equities fell as much as 0.8% and extended declines from the previous session, while the currency was steady at 1.2904 a dollar.

The country's non-oil domestic exports rose by 20.7% in June from a year earlier, as electronics exports continued to surge amid AI-related demand while non-electronics declined.

In neighbouring Malaysia, stocks were up 0.2% while the ringgit weakened marginally to 4.081 per U.S. dollar, its lowest since early July.

Data showed that Malaysia's inflation rose 1.9% in June from a year earlier, while its official advance estimate showed that the economy grew 5.8% in the second quarter from a year earlier.

Elsewhere, Thai equities drifted lower, while those in the Philippines advanced as much as 1.4%, their highest since early March.

Both the Thai baht and the Taiwan dollar weakened to their lowest since late April 2025 against the U.S. dollar. The rupiah extended gains into a fourth day, firming to 17,935 a dollar for the first time in two weeks.

HIGHLIGHTS:

** Japan June core inflation seen at 1.6% on elevated energy prices, Reuters poll shows

** CXMT'S $8.6 billion Shanghai IPO draws less frenzied demand amid China tech selloff

** JERA begins study on US listing as it steps up overseas expansion, sources say

Asia stock indexes and currencies at 0436 GMT

COUNTRY FX RIC FX FX YTD % INDEX STOCKS STOCKS

DAILY % DAILY YTD %

%

Japan -0.01 -3.54 -5.18 22.26

China India Indonesia +0.21 -7.09 0.54 -28.98

Malaysia -0.17 -0.52 0.32 2.83

Philippin +0.07 -4.51 1.13 5.68

es

S.Korea Singapore -0.06 -0.39 -0.60 18.50

Taiwan Thailand -0.15 -6.44 -0.19 29.57