Taiwan equities are under short-term pressure, but earnings momentum is still supported by technology and AI demand

Overview

This report is Goldman Sachs' weekly strategy tracking of the Taiwan equity market, covering index performance, sector rotation, foreign and local fund flows, ETF inflows, valuation, earnings revisions, TSMC ADR premium, cross-strait risk, and macro data. The core conclusion is that the Taiwan market has corrected in the near term due to continued QFII selling of technology stocks, but corporate revenue and earnings expectations remain robust, especially as demand for AI accelerators, server CPUs, advanced processes, and CoWoS-related semiconductors continues to support TSMC and the technology supply chain.

Core views

The report argues that the main contradiction in the Taiwan market is the coexistence of bottom-up fundamental revisions and fund-flow pressure. On the one hand, June listed-company revenue growth accelerated to +57% YoY from 45% in May, 2Q26 Taiwan-wide earnings are forecast to grow +96% YoY, MSCI Taiwan earnings are forecast to grow +66% YoY, and the ERLI model also points to room for further upward revisions. On the other hand, QFII had a net sell-off of US$5.9 billion over the week, with cumulative selling of about US$23.0 billion over the past three weeks, mainly concentrated in technology stocks; from a valuation perspective, MSCI Taiwan's 12-month forward P/E is 21.2x and the TSMC ADR premium is at 17%, both suggesting that the market has already priced high-growth assets quite richly.

Analysis framework

The report uses a weekly market monitoring framework that combines price performance, sector relative returns, fund flows, ETF flows, earnings revisions, valuation percentiles, macro data, and risk indicators. The earnings section integrates monthly sales tracking, the 2Q26 earnings calendar, consensus earnings forecasts, and the Goldman Sachs ERLI model. The risk section combines the TSMC ADR Premium Reversal Index, Taiwan Equity Risk Barometer, Cross-Strait Risk Index, and macro indicators.

Methodology notes

• Earnings ForecastingGS ERLI Model

  Leading indicator of earnings revisions

  The ERLI model is used to predict the direction of NTM EPS revisions over the next three months; this report shows Taiwan earnings were revised up by 3% over the past month and 13% over the past three months, and the model still points to further upward revisions, though the pace may slow.

• Sales TrackingMonthly Sales Tracker

  Monthly revenue versus quarterly consensus comparison

  Quarterly sales progress is tracked through monthly listed-company sales data in Taiwan; June revenue growth was +57% YoY, and sales from April to June reached 104% of the 2Q26 consensus estimate.

• Valuation methodsForward P/E Valuation

  12-month and 24-month forward P/E ratios

  The report uses MSCI Taiwan 12-month and 24-month forward P/Es to assess market valuation, which are 21.2x and 16.7x, corresponding to 2.6 and 1.9 standard deviations above historical averages.

• Risk IndicatorsTSMC ADR Premium Reversal Index

  TSMC ADR premium reversal risk

  TSMC ADR premium rose to 17%, and the reversal index GSSRTSMR is at +0.6, which the report interprets as a potential reversal signal.

• Fund FlowsQFII and ETF Flow Monitor

  Foreign investors, local funds, retail investors, and ETF flow directions

  The report tracks QFII cash stocks and futures positioning, local funds, retail investors, and Taiwan ETF flows to gauge short-term market supply-demand and risk appetite.

Asset mapping & comparison

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

• Taiwan equities / TAIEX

  Core covered asset in the report

  Strengths

  June revenue growth accelerated to +57% YoY, with 2Q26 earnings and sales outlooks remaining at high growth, and earnings revisions still positive.

  Weaknesses

  TAIEX fell 3.0% for the week, with valuations in a relatively high historical range and sustained foreign investor selling pressure creating near-term headwinds.

  Comparison

  Underperformed the MSCI Asia Pacific ex-Japan index by 2.1 percentage points this week.

  Risks

  Continued QFII selling, valuation compression, slowing export growth, and cross-strait and geopolitical risks.

• TSMC

  Taiwan's large-cap technology weight and the starting point of the 2Q26 earnings cycle

  Strengths

  Analysts have raised 2027-2028 capex forecasts, supported by N3/N2 wafer output, CoWoS capacity, and AI/HPC customer demand; shipments in both 2026 and 2027 are expected to double.

  Weaknesses

  Stock fell 1.2% this week, with QFII net selling of about US$1.3 billion over one week.

  Comparison

  TSMC will report first on July 16 and is the key event for Taiwan's 2Q26 earnings season.

  Risks

  TSMC ADR premium has risen to 17%, with GSSRTSMR at +0.6, indicating potential premium reversal; if earnings or guidance fall below high expectations, Taiwan technology stocks could be dragged down.

• Taiwan Technology sectors

  Industry groups most concentrated in earnings growth and foreign investor selling

  Strengths

  Monthly sales and earnings expectations suggest that technology, semiconductors, hardware storage, and electronic components are supported by AI and server demand.

  Weaknesses

  QFII selling pressure is mainly in technology stocks, and hardware-related sectors had large declines this week.

  Comparison

  Healthcare and financials led this week, while hardware, telecom, and chemicals were significantly weaker.

  Risks

  High valuations, foreign investor positioning adjustments, overly elevated AI demand expectations, and potential pullback in TSMC ADR premium.

• Financials and Health Care

  Relatively stronger sectors this week

  Strengths

  Healthcare rose about 2.7%, banks about 2.5%, and insurance and other financials about 2.3%.

  Weaknesses

  The report does not provide detailed fundamental decomposition for these sectors; the strength is largely reflected in weekly relative performance.

  Comparison

  Significantly outperformed the weekly TAIEX+TPEx decline of -3.1%.

  Risks

  If market risk appetite continues to deteriorate, sector rotation could be constrained by the overall index decline.

• Taiwan ETFs

  Funds vehicles for monitoring local and cross-border risk appetite

  Strengths

  Taiwan ETFs recorded about US$2.5 billion of inflows in one week, including about US$1.7 billion into active or broad-based ETFs.

  Weaknesses

  Some inflows came through leveraged ETFs, which can amplify short-term volatility.

  Comparison

  ETF inflows partially offset QFII net selling in cash equities.

  Risks

  If the index continues to pull back, leveraged and thematic ETFs may intensify flow volatility.

Key data

• TAIEX weekly performance-3.0%Lagging MXAPJ by 2.1 percentage points; TSMC down 1.2%.
• QFII net sales (1 week)US$5.9bnNet selling concentrated in technology stocks, with TSMC at about -US$1.3bn and other technology names at about -US$3.0bn.
• Local funds net buyingUS$1.5bnThe report says local funds were net buyers across sectors.
• Retail investors cash stock net buyingUS$4.0bnFinancing ratios rose at the same time, while retail investors reduced long futures positions.
• Taiwan ETF inflowsUS$2.5bnOf these, leveraged ETFs account for about US$650mn, active or broad-based ETFs about US$1.7bn, and dividend ETFs about US$400mn.
• June listed-company revenue growth+57% YoYHigher than May's +45% YoY; sales from April to June reached 104% of the 2Q26 consensus expectation.
• Taiwan-wide 2Q26 earnings outlook+96% YoY / +13% QoQSales estimates are +36% YoY / +14% QoQ, mainly driven by technology, commodities, capital goods, and financials.
• MSCI Taiwan 2Q26 earnings outlook+66% YoY / +10% QoQCompared with +62% YoY and +15% QoQ in 1Q26.
• 2027E EPS revision+1.0%Most sectors have positive revisions, except industrials.
• MSCI Taiwan valuation12m P/E 21.2x; 24m P/E 16.7xEach about 2.6 and 1.9 standard deviations above historical averages, respectively.
• TSMC ADR premium17%Up 4 percentage points over the week; GSSRTSMR is +0.6, signaling potential reversal.
• Taiwan June exports+40.3% YoYBelow Goldman Sachs estimate of +53.5% and May's +51.7%, which the report attributes to clearly weaker demand from ASEAN.
• Taiwan June headline inflation+2.6% YoYAbove the Goldman Sachs estimate of +2.3% and May's +2.2%.
• TWD close32.2Depreciated 0.7% for the week.

Impact & implications

For portfolio positioning, Taiwan's short-term market risk is mainly from foreign investor cuts, concentrated selling pressure on technology stocks, and valuation constraints; however, mid-term earnings support remains strong, especially in AI accelerators, server CPUs, advanced process nodes, and the CoWoS capacity expansion chain. Financials and healthcare were relatively strong this week, reflecting rotation from crowded tech exposure toward defensive or less crowded sectors. If TSMC's earnings and management guidance continue to validate AI/HPC demand, earnings upgrades in the tech chain may continue; if TSMC ADR premium reverses, foreign investors continue to exit, or export momentum slows, the index may remain under pressure.

Risks

• QFII sold about US$5.9bn net last week, with substantial cumulative selling pressure over the last three weeks; sustained outflows would weigh on Taiwan's technology weights.
• MSCI Taiwan 12-month forward P/E of 21.2x is already about 2.6 standard deviations above historical averages, indicating elevated valuation.
• TSMC ADR premium has risen to 17%, with GSSRTSMR at +0.6, suggesting potential premium reversal risk.
• June export YoY growth of 40.3% is below both Goldman Sachs estimates and May's level, suggesting outward demand momentum may be only marginally easing.
• June headline inflation was 2.6% YoY, above both expectation and prior-month values, which may affect interest-rate and financial-conditions assessment.
• Cross-Strait Risk Index fell to 86, but cross-strait and geopolitical risk remains a meaningful tail risk for Taiwan assets.
• If AI, HPC, or server CPU demand falls short of high market expectations, earnings upgrades in the technology chain may slow.

What to watch

• TSMC revenue, gross margin, capex, and AI/HPC guidance after it reports on July 16, 2026.
• Whether the 2Q26 Taiwan corporate earnings season confirms consensus expectations of +96% YoY earnings growth and +36% YoY sales growth.
• Whether QFII continues to concentrate sales in TSMC and other technology stocks, and how futures short positions change.
• Whether inflows from local funds, retail investors, and ETFs can continue to offset foreign investor outflows.
• Whether MSCI Taiwan valuation falls out of the high-standard-deviation band, especially in technology and semiconductors.
• Whether TSMC ADR premium and the GSSRTSMR reversal index rise further or start to decline.
• Subsequent changes in exports, inflation, TWD FX, and Taiwan financial conditions index.