Taiwan stocks fell 1% on the week; foreign investors sold TSMC, but tech stocks and domestic funds still provided support

Overview

This report is Goldman Sachs' weekly strategy and data tracker for Taiwan equities, focusing on the MSCI May 2026 index review, 1Q26 results, April monthly sales, sector performance, style factors, fund flows, earnings revisions, the TSMC ADR premium, and macro risk indicators. The main message is that Taiwan markets pulled back in the short term, non-tech cyclical sectors weighed heavily, and foreign investors resumed selling TSMC; however, foreign investors continued buying other tech stocks, domestic funds flowed strongly into tech, the MSCI rebalance is expected to bring net passive inflows, and fundamentals remain solid.

Core views

First, on market performance, MSCI Taiwan and TAIEX fell 1.4% and 1.0% this week, respectively, while transportation, energy, capital goods, chemicals, and autos lagged, and utilities, telecoms, and other semiconductors outperformed. Second, on flows, QFII sold TSMC but bought other tech stocks and also reduced net short positions in stock index futures; domestic funds provided clear support for tech stocks. Third, on fundamentals, 1Q26 Taiwan company earnings grew 45% YoY, April listed-company revenue grew 37% YoY, and consensus 2027E EPS was revised up 1.1%, with positive revisions mainly coming from tech and capital goods. Fourth, on risks, the cross-strait risk indicator rose to 100, and concentrated foreign selling of TSMC may weigh on sentiment in the near term.

Analysis framework

The report uses a top-down market strategy framework, combining index rebalancing estimates, sector weight changes, passive-flow estimates, company earnings surprise ratios, monthly sales tracking, foreign and domestic fund flows, ETF subscriptions/redemptions, earnings revisions, ADR premium reversal indicators, and macro risk indicators to cross-check Taiwan's short-term performance and medium-term allocation signals.

Methodology notes

• Index rebalancing and passive flowsMSCI May 2026 Index Review

  Estimate potential passive flows through MSCI Standard and IMI index constituent changes, weight shifts, and free-float market capitalization.

  The report expects Taiwan's weight in MSCI EM to rise by 25 bp to 25.3%, and estimates US$7.7bn of two-way passive flows and US$2.3bn of net passive inflows to gauge the potential market and sector support from rebalancing.

• Earnings quality and beats1Q26 Result Summary

  Summarize reported company earnings growth YoY/QoQ, beat/miss ratios, and median earnings and sales surprises.

  Across 1,707 Taiwan companies covering about 98% of market cap, 1Q26 earnings rose 45% YoY and 19% QoQ, 48% beat estimates and 37% missed, and median earnings/sales surprises were +8%/+1%.

• Flow and positioning monitoringEquity Flows and Positioning

  Track QFII, domestic institutions, retail, ETF, and futures positioning changes to identify the source of buying and selling pressure in the market.

  This week, QFII net sold US$2.5bn, concentrated in TSMC; domestic funds net bought US$3.7bn of tech stocks; and dividend ETF products saw US$1.2bn of outflows while non-dividend funds saw US$1.2bn of inflows.

• Valuation and trading signalsTSMC ADR Premium Reversal Index (GSSRTSMR)

  Use TSMC ADR premium and a reversal index to gauge crowded trading and potential mean-reversion signals versus the local share.

  The report shows TSMC ADR premium remained at 13%, and GSSRTSMR was -0.25, suggesting a potential rebound signal, though it still needs to be weighed against foreign selling pressure on TSMC.

Asset mapping & comparison

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

• TSM.US / TSMC

  Key stock in the report and the core target of foreign flow

  Strengths

  TSMC remains the core semiconductor and index-weighted name in Taiwan; its ADR premium stays at 13%, and the GSSRTSMR reversal index at -0.25 suggests potential rebound.

  Weaknesses

  QFII net sold about US$3.0bn of TSMC this week, indicating clear near-term foreign selling pressure.

  Comparison

  Compared with other tech stocks, TSMC saw foreign net selling while other tech names still attracted about US$1.3bn of foreign net buying.

  Risks

  Continued foreign selling, a pullback in ADR premium, rising cross-strait risk, and pressure from index concentration.

• Taiwan tech stocks (excluding TSMC)

  The main direction supported by both foreign and domestic funds

  Strengths

  QFII net bought other tech stocks of US$1.3bn, domestic funds net bought tech stocks of US$3.7bn, and tech and capital goods are the main sources of positive 2027E EPS revisions.

  Weaknesses

  Tech stocks are sensitive to external demand, export orders, and valuation; if TSMC selling pressure spreads, overall tech sentiment may weaken.

  Comparison

  Versus non-tech stocks, tech stocks have stronger flow support and earnings revisions.

  Risks

  Global semiconductor cycle volatility, cooling AI/hardware demand, FX moves, and export orders coming in below expectations.

• MSCI Taiwan / TAIEX

  The report's main market indices and allocation targets

  Strengths

  MSCI rebalancing is expected to bring US$2.3bn of net passive inflows; Goldman Sachs' chart gives a 12-month TAIEX target of 45,000.

  Weaknesses

  Both MSCI Taiwan and TAIEX fell this week, with clear drag from non-tech cyclical sectors.

  Comparison

  Taiwan outperformed MXAPJ by 0.1 percentage points this week, but internal industry dispersion was large.

  Risks

  Passive inflows falling short of expectations, continued foreign selling of TSMC, and rising macro and geopolitical risks.

• Taiwan financials

  A secondary sector amid flow divergence and earnings revisions

  Strengths

  QFII net bought about US$0.3bn of financials this week.

  Weaknesses

  The report indicates negative EPS revisions in financials.

  Comparison

  Financials saw positive flows but weaker earnings revisions than tech and capital goods.

  Risks

  Interest-rate conditions, the credit cycle, downward earnings revisions, and weaker market risk appetite.

• Non-tech cyclical sectors

  The main drag on the Taiwan market this week

  Strengths

  Some sectors may be supported by valuation or cyclical-bottom expectations, but the report does not cite clear positive catalysts.

  Weaknesses

  Transportation fell 4%, and energy, capital goods, chemicals, and autos each fell about 3%; domestic funds net sold US$1.0bn of non-tech stocks.

  Comparison

  Clearly weaker than utilities, telecoms, other semiconductors, and tech-related sectors.

  Risks

  Slowing demand, deteriorating earnings revisions, continued outflows, and lower index-rebalance weights.

• Taiwan ETFs

  Reflects changes in the structure of local fund products

  Strengths

  Non-dividend funds saw US$1.2bn of inflows, showing that money did not fully leave Taiwan equities.

  Weaknesses

  Dividend products saw US$1.2bn of outflows, indicating pressure on income products or style rotation.

  Comparison

  ETF flows are rotating from dividend products to non-dividend products, while spot funds are more constructive on tech stocks.

  Risks

  Rising redemption pressure, crowded product styles, and weaker appeal of dividend yield products.

Key data

• Weekly market performanceMSCI Taiwan -1.4%; TAIEX -1.0%; relative to MXAPJ +0.1 percentage pointsTaiwan equities pulled back this week, but still slightly outperformed the Asia Pacific ex-Japan index.
• Leading sectorsUtilities +4%; Telcos +2%; Other Semis +1%Defensive sectors and some semiconductor names were relatively strong.
• Lagging sectorsTransportation -4%; Energy, Capital Goods, Chemicals, and Autos each about -3%Non-tech cyclical sectors were the main drag.
• TSMC performanceTSMC -1%; TWD 31.5 (-0.5%)The body of the report shows TSMC declined this week and the Taiwan dollar weakened slightly.
• MSCI weight changeTaiwan's weight in MSCI EM is expected to rise by 25bp to 25.3%From MSCI's May 2026 review.
• MSCI passive flowsUS$7.7bn two-way passive flows; US$2.3bn net passive inflowsGoldman Sachs' estimate of the potential passive-flow impact from rebalancing.
• QFII flowNet sold US$2.5bn this week; TSMC -US$3.0bn; other tech stocks +US$1.3bn; financials +US$0.3bnForeign selling was highly concentrated in TSMC, but not a complete exit from tech stocks.
• Domestic fund flowTech stocks net bought US$3.7bn; non-tech stocks net sold US$1.0bnDomestic funds provided support for tech stocks.
• ETF flowDividend products outflow US$1.2bn; non-dividend funds inflow US$1.2bnThere was style rotation within ETFs.
• 1Q26 resultsEarnings +45% YoY, +19% QoQ; 48% beat, 37% miss; median earnings/sales surprise +8%/+1%Covers 1,707 Taiwan companies, about 98% of Taiwan market capitalization.
• April monthly salesListed-company revenue +37% YoY, down from +39% in March; reached 36% of consensus Q2 estimatesGrowth was led mainly by information technology and commodity-related sectors.
• EPS revisionsConsensus 2027E EPS +1.1%Positive revisions were mainly in tech and capital goods, while negative revisions were in financials, commodities, and defensive sectors.
• TSMC ADR premium13%, unchanged; GSSRTSMR -0.25The reversal index suggests a potential rebound, but foreign selling of TSMC remains a near-term headwind.
• Cross-strait risk indicatorGSSRCSRI rose to 100The report lists this as an equity and policy risk item.

Impact & implications

From an investment perspective, the short-term trading driver for Taiwan is not simply a decline in risk appetite, but rather structural divergence: foreign investors turned back to selling TSMC, while still buying other tech stocks, and domestic funds also materially supported tech. At the same time, non-tech cyclical sectors are under pressure. If the MSCI rebalancing delivers the expected net passive inflow and tech earnings revisions remain positive, Taiwan's tech chain could continue to receive relative support. But if TSMC selling intensifies, cross-strait risk continues to rise, or weakness in non-tech cyclical sectors broadens, upside for the index may be capped.

Risks

• If concentrated QFII selling of TSMC continues, it may weigh on the Taiwan index and semiconductor sentiment.
• Non-tech cyclical sectors remain weak, with transportation, energy, capital goods, chemicals, and autos all significantly lagging.
• The cross-strait risk indicator GSSRCSRI rose to 100, so geopolitical and policy risks need continued monitoring.
• Financials, commodities, and defensive sectors are seeing negative EPS revisions, raising concerns about earnings breadth.
• ETF dividend products saw US$1.2bn of outflows; if redemptions expand, the local fund structure could be affected.
• The passive flows tied to MSCI rebalancing are estimates, and actual trading will be affected by liquidity, tracking error, and market conditions.
• Goldman Sachs disclosure states that the research is based on currently public information, and views and forecasts may change at any time and do not constitute personalized investment advice.

What to watch

• Wednesday export orders data and Friday unemployment rate data.
• Actual passive flows when the MSCI May 2026 index changes take effect after May 29.
• Whether QFII continues to sell TSMC and keeps buying other tech stocks and financials.
• Whether domestic funds can continue their US$3.7bn net buying of tech stocks.
• April sales have already reached 36% of consensus Q2 estimates; whether subsequent monthly sales can support second-quarter earnings expectations.
• Whether 2027E EPS revisions continue to be driven by tech and capital goods, or whether negative revisions spread to more sectors.
• Whether TSMC ADR premium stays at 13% and whether the GSSRTSMR reversal signal materializes.
• Whether the GSSRCSRI cross-strait risk indicator remains elevated.