Taiwan equity market: Taiwan equities reached a record as foreign buying and large-cap technology outweighed weakness in financials and domestic sectors

Overview

This weekly Taiwan market review attributes the record TAIEX advance to large-cap technology strength and foreign buying despite higher oil prices and US yields. It combines market and sector performance, flows, positioning, valuations, earnings revisions, macro data, and risk indicators to frame the Taiwan equity outlook.

Core views

Taiwan equities advanced despite a less supportive global backdrop. TAIEX rose 1.8% and MXTW gained 1.9%, outperforming MXAPJ by 0.6 percentage points, while the TAIEX closed at a record above 48,000. Leadership was concentrated in technology: other semiconductors rose 5.0%, technology hardware gained 3.5%, and TSMC increased 0.6%. In contrast, property declined 4.0%, banks fell 2.0%, and consumer sectors fell 1.0%. The report's Asia-Pacific allocation table lists Taiwan with a 54,000 12-month TWSE target, compared with 48,025, implying 12% index appreciation and 15% total return. Investor flows supported the technology-led advance but were uneven across participant groups. QFIIs purchased US$1.7 billion of Taiwan cash equities during the week, with US$1.4 billion directed to ex-TSMC technology while most non-technology sectors were sold. Foreign investors also increased net short futures positions by US$2.0 billion, indicating that cash-equity buying coexisted with greater futures hedging or bearish positioning. Local funds sold US$740 million, primarily technology, while retail investors sold US$1.2 billion in cash equities but increased margin balances and net long futures positions. Short-interest ratios declined moderately. ETF activity was broadly muted: US$600 million of dividend-ETF inflows and US$500 million of broad-market ETF inflows were offset by US$600 million of leveraged-ETF outflows and US$400 million of active-ETF outflows. Hedge-fund positioning remained risk-on after sharp de-grossing in late July and August. September net hedge-fund flows into Taiwan were flat because early-month selling was offset by buying in the latest week. However, gross buying-plus-selling activity continued to show risk-on behavior. Taiwan's net allocation rose to 6.8% of the global book, at the 79th percentile of the prior year and 96th percentile of the prior five years; gross allocation ended at 4.3%, at the 87th and 97th percentiles, respectively. The report also notes a 69-basis-point increase in Asia hedge-fund net allocation to 30.5%. Earnings indicators remained supportive. Consensus 2027E EPS for Taiwan rose 0.3%, led by positive revisions in transportation, defensives, and information technology. Listed-company August revenue grew 55% year on year, up from 50% in July, and the two-month run rate reached 66% of consensus third-quarter estimates versus a 64% historical average. Reported 2Q26 earnings across Taiwan companies rose 174% year on year and 34% quarter on quarter; 49% of companies beat expectations versus 37% that missed, while median earnings and sales surprises were +14% and +4%. The report's top-down EPS forecasts show Taiwan EPS growth of 62% for 2026E and 30% for 2027E, compared with consensus estimates of 65% and 29%. Macro data were mixed but still reflected unusually strong external demand. August industrial production fell 0.5% month on month while rising 23.5% year on year, below consensus of 26.7% and July's 24.0%, which the report attributes to a pullback in AI-related production. Retail sales increased 0.6% month on month and 6.5% year on year, below July's 7.8% pace. Export orders accelerated to 71.4% year-on-year growth from 62.0% in July. Goldman Sachs forecasts Taiwan real GDP growth of 11.1% in 2026E before slowing to 2.6% in 2027E, with exports expected to grow 22.0% and 4.2%, respectively. Valuation and risk measures temper the constructive market evidence. Taiwan's forward 12-month and 24-month P/E multiples were 18.7x and 14.8x, respectively, equivalent to +1.5 and +0.7 standard deviations. TSMC's ADR premium rose four percentage points to 16%; the GSSRTSMR reversal index was +0.6, which the report characterizes as indicating potential reversal. The Cross-Strait Risk Index remained at 77. The report therefore presents a market supported by technology, foreign flows, and earnings momentum, while highlighting elevated valuation, concentrated positioning, ADR-premium reversal risk, and geopolitical risk.

Analysis framework

Goldman Sachs reviews the Taiwan market through a scorecard of index and sector returns, foreign and domestic investor flows, hedge-fund and ETF positioning, valuation multiples, consensus EPS revisions, macroeconomic releases, monthly sales, and reported earnings. It also uses factor portfolios, a TSMC ADR-premium reversal model, and equity and geopolitical risk indicators to assess market breadth and risk conditions.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation comparison

  The report compares Taiwan's forward 12-month and 24-month P/E multiples with historical standard-deviation levels to show that market valuations are above their usual range.

• Quantitative, Factor, and Portfolio TheoryStyle factor analysis

  MSCI Taiwan style-factor monitoring

  The factor monitor uses quarterly rebalanced, equal-weighted baskets of top- and bottom-quartile MSCI Taiwan constituents ranked by factor metrics to track relative style performance.

• Other

  TSMC ADR Premium Reversal Index (GSSRTSMR)

  The report uses a model-based index, with historical average SHAP feature importance, to identify conditions that may signal a reversal in TSMC's ADR premium.

Asset mapping & comparison

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

• Taiwan equities / TAIEX

  The report's primary market subject, supported by technology leadership, foreign buying, earnings momentum, and a 54,000 12-month TWSE target in the Asia-Pacific allocation table.

  Strengths

  Technology-sector gains, positive EPS revisions, 55% August sales growth, and strong 2Q26 earnings growth.

  Weaknesses

  Performance was concentrated in large-cap technology while financials and many domestic sectors declined.

  Comparison

  TAIEX/MXTW outperformed MXAPJ by 0.6 percentage points during the week.

  Risks

  Elevated forward P/E multiples, potential TSMC ADR-premium reversal, and cross-strait risk.

• TSMC

  A major technology constituent whose ADR premium and market contribution are monitored in the Taiwan strategy review.

  Strengths

  TSMC rose 0.6% during the week and remained central to Taiwan market performance.

  Weaknesses

  Its gain lagged other semiconductors' 5.0% advance.

  Comparison

  The ADR premium rose to 16%, four percentage points higher.

  Risks

  The GSSRTSMR reading of +0.6 indicates potential reversal in the ADR premium.

Key data

• TAIEX / MXTW weekly performance+1.8% / +1.9%Outperformed MXAPJ by 0.6 percentage points.
• QFII cash-equity flowUS$1.7bn net buyingUS$1.4bn was concentrated in ex-TSMC technology.
• Hedge-fund net allocation to Taiwan6.8% of global bookAt the 79th percentile of the past year and 96th percentile of the past five years.
• Forward P/E18.7x / 14.8xForward 12-month/24-month multiples, at +1.5/+0.7 standard deviations.
• August listed-company revenue growth+55% YoYVersus +50% in July; the two-month run rate was 66% of consensus Q3 estimates.
• 2Q26 Taiwan earnings growth+174% YoY / +34% QoQ49% of companies beat expectations and 37% missed.
• Cross-Strait Risk Index77Unchanged according to the report.

Impact & implications

The report indicates that Taiwan's market advance remains driven by technology leadership, foreign cash-equity demand, and unusually strong revenue and earnings growth. At the same time, the narrow sector leadership, elevated forward valuation, high hedge-fund allocation, TSMC ADR-premium reversal signal, and unchanged cross-strait risk index are relevant constraints on the market backdrop.

Risks

• Taiwan forward 12-month and 24-month P/E multiples of 18.7x and 14.8x were 1.5 and 0.7 standard deviations above historical levels.
• The TSMC ADR premium rose to 16%, while the +0.6 reversal index reading signals potential reversal.
• The Cross-Strait Risk Index remained at 77.
• Foreign investors increased net short futures positions by US$2.0 billion despite buying cash equities.

What to watch

• Consumer confidence data due Wednesday and S&P manufacturing PMI due Thursday.
• Whether QFII technology buying persists while foreign futures short positioning rises.
• Further movements in Taiwan technology leadership, EPS revisions, and TSMC's ADR premium.
• August industrial-production trends following the reported pullback in AI-related production.