Taiwan Stocks Flat Despite Strong Fundamentals; Foreign Outflows and TSM Under Pressure

Overview

In this week’s Goldman Sachs Taiwan report, Taiwan’s stock market was largely unchanged, with the MSCI Taiwan Index down 0.5% and the TAIEX up 0.0%, underperforming the broader Asia-Pacific markets by 0.8%. The lackluster performance was primarily driven by a 2% decline in TSM and strong foreign outflows. However, Taiwan’s economic fundamentals are exceptionally robust: Q1 GDP surged 13.7% year-over-year—well above the market’s expectation of 11.3%—and earnings from the first quarter show a 57% year-over-year increase among 177 reported companies, with 60% exceeding expectations. Overall, despite significant macroeconomic and corporate positives, short-term market dynamics remain pressured by capital flows, particularly foreign outflows.

Core views

Market Performance and Capital Flows: This week, Taiwan’s stock market appeared stable, yet capital flows revealed stark divergence. Foreign investors (QFII) net-sold $6.4 billion in equities, with TSM alone accounting for $5.4 billion in outflows, while simultaneously adding $1.9 billion in net short futures positions. In contrast, local funds and retail investors remained optimistic—local funds net-bought $800 million worth of tech stocks, and retail investors increased margin balances and net long futures positions. ETF flows also showed structural shifts, with dividend-focused ETFs seeing $1.4 billion outflows, while non-dividend ETFs attracted $2.1 billion in inflows. Corporate Earnings and Macroeconomic Data: Solid fundamentals provided strong support. At the macro level, Taiwan’s Q1 GDP grew 13.7% year-over-year, up from 12.7% in the previous quarter and well above the market’s 11.3% forecast, driven mainly by investment and exports. On the corporate front, among 177 companies that have reported their Q1 results (accounting for 61% of total market cap), earnings jumped 57% year-over-year and 20% quarter-over-quarter, with 60% beating expectations. Median surprises in earnings and sales stood at +8% and +1%, respectively. Additionally, market consensus for Taiwan’s 2027 EPS has risen 1.7% this week, with cumulative revisions of 9% since April, led by industrial, IT, and financial sectors. TSM Dynamics and Valuation Signals: As a core heavyweight stock, TSM fell 2% this week, directly weighing on the broader market. However, its ADR premium expanded to 18% (+2 percentage points), and Goldman Sachs’ proprietary TSM ADR Premium Reversal Index (GSSRTSMR) reached +0.25, suggesting potential future convergence or decline in the premium.

Analysis framework

In this weekly report, Goldman Sachs employed a multi-dimensional analytical framework combining top-down and bottom-up approaches. First, it examined macroeconomic trends and fundamental data, tracking GDP growth, monthly revenue, and quarterly earnings to confirm economic and corporate momentum. Second, on the capital flow side, it systematically dissected changes in cash equity and futures positions across various investor groups—foreign investors (QFII), domestic institutions, retail investors, and ETFs—to assess microstructural support. Third, by comparing returns, valuations (P/E, P/B), and earnings revision rates across industry sectors within the MSCI Taiwan Index, alongside style factor monitoring, it evaluated market value-for-money. Finally, focusing specifically on TSM, it introduced the proprietary ADR Premium Reversal Index (GSSRTSMR), using a multi-factor model—including premium movements, earnings growth, macro surprises, and risk sentiment—to predict future ADR premium trends and provide short-term trading signals.

Methodology notes

• Industry/Supply-Demand Analysis FrameworkSupply-demand framework

  Application of the supply-demand framework at the macro level

  The report analyzes investment and export growth within GDP figures to confirm demand-side drivers of Taiwan’s economy. The unexpected 13.7% Q1 GDP growth, primarily fueled by investment and exports, underscores that external demand and capital expenditure remain key pillars supporting Taiwan’s current economic vitality.

• Corporate Fundamentals and Financial Analysis FrameworkEarnings Quality Analysis

  Tracking earnings surprises and revision trends

  By tallying the percentage of companies reporting earnings above expectations (60% beats) and calculating median surprises in earnings and sales (+8%/+1%), combined with projected EPS revisions for 2027 (+1.7% week-over-week), the report evaluates the quality and improving trend of corporate earnings.

• Event-Based Game Theory and Behavioral FinanceCapital Flow/Chip Analysis

  Dissecting multiple categories of capital flows

  Market participants are divided into foreign investors, domestic funds, retail investors, and ETFs, each tracked separately for net buying/selling and long/short positions in both spot and derivative markets. This approach helps cut through surface-level index fluctuations to reveal the true structure of capital博弈—such as this week’s pattern of foreign outflows paired with retail and domestic fund activity.

• Quantitative/Factor/Portfolio Theory

  ADR Premium Reversal Index (GSSRTSMR)

  Goldman Sachs developed a proprietary index targeting TSM’s ADR premium, employing a multi-factor model—including premium changes, earnings growth, macro surprises, and risk sentiment—to calculate SHAP values and gauge whether the current ADR premium (18%) is likely to converge or expand. A positive index reading (+0.25) indicates potential downward pressure on the premium.

• Valuation methodsPE/PEG valuation

  Forward P/E Ratios and Valuation Z-Scores

  The report computes forward P/E ratios and 12- and 24-month valuation Z-scores for each sector in Taiwan, comparing them against historical 10-year averages to determine whether current valuations are overvalued or undervalued, thereby providing valuation anchors for sector allocation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TSM (TSM)

  Core Dragging Stock

  Strengths

  As a core heavyweight in Taiwan’s market, benefiting from AI and semiconductor cycle booms, earnings forecasts continue to be revised upward.

  Weaknesses

  Down 2% this week, facing concentrated foreign selling pressure.

  Comparison

  Underperformed other tech hardware and semiconductor sectors this week, which gained 2–3%.

  Risks

  ADR premium has risen to 18%, with reversal index suggesting potential decline; short-term foreign outflow risks.

• Non-TSM Semiconductor Sectors

  Structurally Benefiting Stocks

  Strengths

  Outperformed TSM this week, gaining 2.5% amid favor from local funds and some foreign investors.

  Weaknesses

  None.

  Comparison

  Significantly outpaced TSM.

  Risks

  None.

• Energy Sector

  Leading Gainers

  Strengths

  Led Taiwan’s market gains this week, rising 9%.

  Weaknesses

  None.

  Comparison

  Goldman Sachs strategy recommends underweighting (UW), but short-term price action remains strong.

  Risks

  None.

Key data

• Taiwan Q1 GDP Year-over-Year Growth+13.7%Far exceeds the market’s forecast of 11.3%; previous figure was +12.7%
• Taiwan Corporate Q1 2026 Earnings Growth (YoY/QoQ)+57% / +20%Based on 177 disclosed companies (61% of total market cap), with 60% beating expectations
• Foreign Investors (QFII) Net Selling This Week$6.4 billionConcentrated on TSM, with $5.4 billion flowing out of TSM alone
• TSM Stock Price Movement This Week-2%Dragged down the overall Taiwan market performance
• TSM ADR Premium18%Up 2 percentage points from last week; reversal index reads +0.25
• 2027 EPS Forecast Revision Week-over-Week+1.7%Cumulative revisions since April now stand at +9%, driven by industrial, IT, and financial sectors
• TAIEX 12-Month Target Price40,000 pointsCurrent index stands at 38,927, implying roughly 3% upside potential
• Taiwan March Listed Companies Revenue YoY Growth+37%Previous figure was +16%; revenues for January–March meet Q1 expectations at 104%

Impact & implications

The report concludes that Taiwan’s market currently exhibits a paradoxical landscape: strong fundamentals coexist with divergent capital flows. The unexpectedly robust GDP and surging corporate earnings suggest that Taiwan’s economy remains fundamentally sound, particularly amid the ongoing recovery of its technology and semiconductor industries. However, substantial foreign outflows and short-term pressure on TSM indicate that overseas investors may harbor concerns about near-term valuations or macro risks. While local retail investors and domestic funds have stepped in to support the market, they’ve also pushed leverage metrics like margin balances higher. Looking ahead, whether TSM’s ADR premium can stabilize and whether foreign outflows reverse will be critical determinants of the market’s near-term trajectory. Overall, Goldman Sachs assigns a neutral rating to Taiwan, noting that current valuations partially reflect strong fundamentals, leaving limited room for further upside.

What to watch

• S&P PMI Data (Monday)
• Foreign Exchange Reserves (Wednesday)
• Inflation Data (Thursday)
• Export/Trade Data (Friday)