Taiwan equities hit record highs on tech strength, but TSMC remains weak in the near term

Overview

This report is a Goldman Sachs Taiwan market weekly note focused on Taiwan equity performance, fund flows, valuations, earnings revisions, the impact of MSCI rebalancing, the TSMC ADR premium, and macro indicators. It shows that Taiwan equities kept rising to fresh highs on technology-related strength, supported by domestic and foreign institutional buying, upward earnings revisions, and expected passive inflows tied to rebalancing. At the same time, TSMC underperformed this week, and foreign investors continued to sell TSMC heavily.

Core views

Goldman's core view is that Taiwan's short-term momentum is still driven by the tech chain and earnings upgrades, and market breadth is not limited to TSMC; tech hardware, other semiconductors, and transportation led the market. On the flow side, modest net buying by foreign investors, active allocation to tech by local funds, and inflows into non-dividend ETFs all supported the market. However, valuations are already at clearly elevated levels, TSMC fell on the week while foreign selling continued, and the near-term risk/reward is less one-sidedly positive than the index-level gains suggest.

Analysis framework

The report uses a weekly market and strategy-monitoring framework to cross-check Taiwan market momentum from multiple angles: index performance, sector rotation, fund flows, ETF flows, valuation, earnings revisions, TSMC ADR premium, macro data, and monthly sales. It is not a single-company fundamental model; rather, it treats TSMC as one of the core heavyweight assets in Taiwan and combines index, sector, and flow data to assess the market trend.

Methodology notes

• 市场策略Taiwan market/sector scorecard

  从收益率、估值、成长、盈利修正和外资流向评估台湾股市与各行业强弱。

  该框架用于识别本周领先与落后板块，并判断市场上涨是否由少数权重股或更广泛行业共同推动。

• 资金流分析QFII, local institutions, ETF, and futures positioning monitor

  跟踪外资、本地基金、散户、ETF和期货仓位变化。

  报告用资金流数据解释指数上涨背后的买盘来源，同时指出外资虽整体小幅净买入，但对TSMC仍为大额净卖出。

• 盈利预期EPS revision monitor

  比较一致预期EPS的上调和下调方向。

  报告指出2027E一致预期EPS上调1.0%，正修正主要集中在金融、信息科技和防御板块。

• 估值Forward P/E and historical standard deviation

  以12个月和24个月远期PE及其相对历史均值的标准差衡量估值位置。

  12个月和24个月远期PE分别为21.2x和17.0x，显示台湾市场估值已处于偏高区间。

• 跨市场价差TSMC ADR Premium Reversal Index (GSSRTSMR)

  观察TSMC ADR溢价及其反转信号。

  报告显示TSMC ADR溢价为14%，GSSRTSMR为-0.00，当前读数为中性。

Asset mapping & comparison

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

• TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD / US.TSM

  A core Taiwanese heavyweight semiconductor asset; the report uses it as a key reference for TSMC ADR premium and flow monitoring.

  Strengths

  TSMC remains at the center of Taiwan's tech and semiconductor complex over the long term, with YTD performance of about +45% and an ADR premium still at 14%.

  Weaknesses

  The stock fell 0.4% this week, foreign investors continued to sell about US$2.5bn net, and near-term performance lagged tech hardware and other semiconductors.

  Comparison

  Compared with the TAIEX's roughly +2.7% weekly gain and other semiconductors' roughly +6%-7% performance, TSMC lagged materially this week.

  Risks

  Elevated valuations, continued foreign selling, ADR premium reversal risk, and Taiwan/cross-strait risk.

• TAIEX / MSCI Taiwan

  The main Taiwan equity market index and regional allocation reference tracked in the report.

  Strengths

  The index reached fresh highs, broad tech gains were strong, and earnings revisions plus institutional buying supported it.

  Weaknesses

  Market valuations are in a high standard-deviation range, and gains are concentrated in tech-related sectors with clear divergence elsewhere.

  Comparison

  MSCI Taiwan and the TAIEX rose 2.1% and 2.7%, respectively, outperforming MXAPJ by about 0.8 percentage points.

  Risks

  Valuation pullback, flow reversal, weaker buying after MSCI rebalancing, and slower macro growth.

• Taiwan tech hardware and semiconductor sectors

  The main leading sectors in Taiwan this week.

  Strengths

  Tech hardware and other semiconductors rose about 6%-7% on the week, and local funds bought about US$1.8bn of tech stocks net.

  Weaknesses

  The sector may already be partially discounting earnings upgrades and remains highly sensitive to the global tech cycle and AI demand.

  Comparison

  It outperformed TSMC, staples, telecom, real estate, and energy by a clear margin.

  Risks

  Cooling AI demand expectations, negative earnings revisions, foreign flow pullback, and valuation compression.

• Taiwan non-tech sectors

  A comparison set used to judge market breadth and rotation quality.

  Strengths

  Some financial and defensive sectors were more positive in EPS revisions.

  Weaknesses

  Staples, telecom, real estate, and energy underperformed this week, and local funds net sold about US$400mn of non-tech stocks.

  Comparison

  Overall performance lagged tech hardware, semiconductors, and transportation.

  Risks

  Continued flow toward tech putting relative performance under pressure, and ongoing divergence in domestic-demand and rate-sensitive sectors.

Key data

• MSCI Taiwan / TAIEX weekly performance+2.1% / +2.7%Outperformed MXAPJ by about +0.8 percentage points.
• Leading sectorsTech hardware, other semiconductors, transportation: about +6% to +7%This week's Taiwan rally was driven mainly by tech and some cyclical sectors.
• Lagging sectorsStaples about -3%; telecom, real estate, and energy about -1% eachDefensive and some non-tech sectors lagged.
• TSMC weekly performance-0.4%TSMC's near-term return was weak despite the index reaching record highs.
• Forward valuation12-month P/E 21.2x; 24-month P/E 17.0xEquivalent to about +2.9 and +2.3 standard deviations, respectively.
• QFII flowsNet buy of US$130mnOther tech names saw net buying of about US$1.3bn, industrials about US$1.0bn, but TSMC saw net selling of about US$2.5bn.
• Local fund flowsNet buy of US$1.8bn of tech stocks; net sell of US$400mn of non-tech stocksLocal institutional money clearly favored tech.
• ETF flowsNon-dividend funds saw US$2.2bn of inflows; dividend products saw US$0.6bn of outflowsETF preference shifted from dividend products toward non-dividend products.
• MSCI rebalancing estimateUp to US$22bn of gross two-way flow; US$1.4bn of net passive inflows into TaiwanExpected to take effect after the May 29 close.
• EPS revisions2027E consensus EPS +1.0%Positive revisions were strongest in financials, information technology, and defensive sectors, while commodities and transportation saw negative revisions.
• TSMC ADR premium14%; GSSRTSMR -0.00The reversal index is neutral.
• Macro dataApril export orders +48% y/y; M2 +6.5% y/yExport order growth slowed from +66% in March, while M2 was above March's +5.8%.
• April listed-company revenue+37% y/yBelow March's +39%, driven by information technology and commodities, with April sales at about 36% of consensus Q2 estimates.

Impact & implications

For Taiwan equities, the report suggests that the tech and semiconductor chain remains the primary driver of the market's upside; earnings upgrades and expected passive inflows may continue to support the index. However, elevated valuations, weaker TSMC flows, weakness in some sectors, and geopolitical risk indicators still warrant attention. For TSMC specifically, while it remains a core asset for Taiwan market and semiconductor exposure, this week's data emphasizes broad-based technology strength at the index level rather than synchronized outperformance in TSMC shares.

Risks

• Taiwan's 12-month and 24-month forward P/E ratios are elevated, creating valuation compression risk.
• TSMC fell this week while foreign investors kept selling, which could weigh on heavyweight index performance.
• Short-interest ratio continues to rise, indicating increased hedging or short interest around downside risk.
• The cross-strait risk indicator GSSRCSRI remains at 100, so geopolitical risk should not be ignored.
• Passive inflows from MSCI rebalancing may be event-driven; flow support could weaken after the effective date.
• Export order growth slowed from +66% in March to +48% in April, signaling marginally softer macro momentum.

What to watch

• The actual MSCI rebalancing flow and the scale of Taiwan net passive inflows after the May 29 close.
• Whether foreign investors continue to sell TSMC net and whether local funds keep buying tech stocks.
• Whether 2027E EPS revisions keep moving higher, especially in information technology, financials, and defensive sectors.
• Whether the TSMC ADR premium and GSSRTSMR move from neutral into a reversal signal.
• Taiwan industrial production, retail sales, and consumer confidence data after April.
• Changes in the short-interest ratio and retail futures net long positions.
• Whether the TAIEX can maintain its 12-month target path to 45,000 amid elevated valuations.