Taiwan Weekly: TAIEX Pulls Back as Foreign Investors Sell Technology Stocks Amid Continued ETF Inflows

Overview

This report is Goldman Sachs' weekly tracking of the Taiwan equity market, covering index performance, sector strength, foreign and local fund flows, ETF flows, leveraged ETF and margin risks, valuation, earnings revisions, the TSMC ADR Premium Reversal Index, cross-Strait risks, and macroeconomic data. The key backdrop is that TAIEX pulled back after a strong rebound in the previous session; although the market's headline decline was moderate, pressure was more pronounced excluding TSMC.

Core views

The report's core view is that the Taiwan market is in an environment of capital-flow divergence and heightened volatility in the short term. Foreign investors continued to sell technology stocks heavily, particularly TSMC and other technology assets, while non-technology sectors attracted foreign buying and local funds and ETFs continued to provide support. On earnings, 2027E consensus EPS was revised up 1.1%, and reported 2Q26 earnings grew substantially both year over year and quarter over quarter, providing fundamental support. On valuation, f12m/24m P/E stands at 19.1x/14.9x, above historical averages. Key risks include leveraged ETF rebalancing, margin maintenance ratios approaching trigger levels, and cross-Strait risks.

Analysis framework

The report uses a weekly market-monitoring framework that combines price performance, sector rotation, fund flows, ETF subscriptions and redemptions, margin trading, earnings revisions, valuation percentiles, macroeconomic indicators, and policy/geopolitical risk indicators to assess short-term pressure, structural support, and potential sources of volatility in the Taiwan equity market.

Methodology notes

• Earnings and valuationFactSet bottom-up consensus estimates

  Bottom-up consensus earnings and valuation

  The report states that its fundamental metrics, including earnings and valuation, are based on FactSet bottom-up consensus estimates and are used to compare EPS growth, EPS revisions, P/E, P/B, and ROE for the overall Taiwan market and its sectors.

• Style factorsMSCI Taiwan style factor monitor

  Long-short style factor portfolios based on MSCI Taiwan constituents

  Style factor performance is based on MSCI Taiwan constituents. Stocks are ranked by the relevant factor metric, and the top and bottom quartiles are used to construct quarterly rebalanced, equal-weighted long-short portfolios.

• Derivatives and fund flowsLeveraged ETF rebalancing flow analysis

  Estimation of leveraged and inverse ETF rebalancing hedging flows

  The report compares leveraged ETF AUM in Taiwan and South Korea and estimates that a 5% one-day market move could trigger approximately US$1.8bn of same-direction dealer hedging flows from Taiwan leveraged ETFs, measuring the potential volatility-amplification effect.

• Quantitative risk indicatorsTSMC ADR Premium Reversal Index (GSSRTSMR)

  TSMC ADR Premium Reversal Index

  The report tracks the TSMC ADR premium and GSSRTSMR, noting that feature importance is based on historical average model SHAP values. The latest index reading is -0.6, interpreted as indicating a potential rebound signal.

Asset mapping & comparison

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

• TAIEX / Taiwan equity market

  Core covered asset

  Strengths

  Strong 2Q26 earnings growth, support from ETF and local fund inflows, and Q2 GDP above consensus.

  Weaknesses

  The index declined on a weekly basis, pressure was greater excluding TSMC, and valuation is in an elevated range.

  Comparison

  Weekly TAIEX/MSCI Taiwan performance lagged MXAPJ by 2.2 percentage points.

  Risks

  Continued foreign selling of technology stocks, leveraged ETF rebalancing, margin deleveraging, and geopolitical risks.

• TSMC

  Key index weight and fund-flow focus

  Strengths

  Rose 3% on the week and supported the index; the ADR Premium Reversal Index points to a potential rebound.

  Weaknesses

  QFIIs made approximately US$1.2bn of net sales in one week, and the ADR premium declined to 8%.

  Comparison

  Excluding TSMC, TAIEX performance deteriorated from approximately -1% to approximately -5%.

  Risks

  Continued foreign selling, changes in the ADR premium, and valuation pressure in the semiconductor sector.

• Taiwan technology stocks / semiconductors / technology hardware

  Sectors concentrated in foreign selling

  Strengths

  Information technology and industrials contributed substantial positive EPS revisions, while semiconductor companies reported strong 2Q26 earnings.

  Weaknesses

  Technology hardware and other semiconductors declined approximately 7% for the week, while QFIIs continued to sell technology stocks heavily.

  Comparison

  Non-technology sectors attracted net foreign buying, whereas technology sectors experienced significant outflows.

  Risks

  Elevated valuations, risk of earnings expectations failing to materialize, and foreign portfolio adjustments.

• Financials, banks, and insurance

  Weekly defensive and leading sectors

  Strengths

  Banks rose 5% and insurance rose 3%, with financials outperforming.

  Weaknesses

  The report does not identify long-term growth catalysts of comparable strength to those in technology.

  Comparison

  Outperformed lagging sectors such as energy, chemicals, and technology hardware.

  Risks

  Changes in interest rates, macroeconomic growth, and fund rotation.

• Taiwan leveraged ETFs

  Volatility amplifier and fund-flow focus

  Strengths

  AUM reached US$13bn, with strong inflows year to date.

  Weaknesses

  Strong inflows could increase market volatility.

  Comparison

  South Korean leveraged ETF AUM is approximately US$24bn; Taiwan's rebalancing flows remain relatively moderate.

  Risks

  A 5% one-day move could trigger approximately US$1.8bn of same-direction dealer hedging flows, amplifying short-term price volatility.

• Taiwan margin trading

  Indicator of retail leverage and liquidation risk

  Strengths

  Long margin positions represent only approximately 0.6% of free-float market capitalization, so the impact on the broader market remains manageable.

  Weaknesses

  Margin loans have declined 13% from their peak, and the maintenance ratio briefly fell below 145%.

  Comparison

  The report believes that before Friday's strong rebound, the maintenance ratio had approached a level that could trigger broader margin deleveraging.

  Risks

  If the market falls sharply again, margin liquidations could amplify selling pressure.

Key data

• Weekly performance of TAIEX/MSCI Taiwan-1.2% / +0.3%Lagged MXAPJ by 2.2 percentage points.
• Leading sectorsBanks +5%, TSMC +3%, insurance +3%Based on the weekly performance summary.
• Lagging sectorsEnergy -18%, chemicals -9%, technology hardware and other semiconductors -7%Indicates that the market's pullback pressure was concentrated mainly in certain cyclical and technology sectors.
• QFII net cash-equity flowsUS$2.6bn net sellingTechnology stocks were the main source of selling, including approximately -US$1.2bn in TSMC and -US$2.8bn in other technology stocks; non-technology stocks saw US$1.8bn of buying.
• Local fund net purchasesUS$1.6bnThe report states that local funds made net purchases across sectors.
• Taiwan-focused ETF inflowsUS$4.9bnIncluding approximately US$750mn into leveraged ETFs, US$800mn into active ETFs, US$3.1bn into broad-market ETFs, and US$300mn into dividend products.
• Taiwan leveraged ETF AUMUS$13bnInflow of US$8bn year to date, including US$4.5bn of inflows during the recent market pullback.
• Potential leveraged ETF hedging flowsUS$1.8bnA 5% one-day market move could generate same-direction dealer hedging flows equivalent to approximately 6% of Taiwan's daily trading volume.
• Margin loan balanceUS$13bnDown 13% from its peak; long margin positions have a market value of approximately US$21bn, or about 0.6% of the market's free-float capitalization.
• Reported 2Q26 earnings growth+119% YoY / +26% QoQAmong Taiwanese companies in the reported sample, 51% beat earnings expectations and 30% missed; median earnings/sales beats were +14%/+4%.
• 2027E EPS revisions+1.1%Positive revisions were driven mainly by information technology and industrials.
• f12m/24m P/E19.1x / 14.9x 각각 above historical averages by +1.7/+0.8 standard deviations.
• TSMC ADR premium8%Down 3 percentage points from the previous period; GSSRTSMR was -0.6, which the report says indicates a potential rebound.
• Cross-Strait risk indicatorGSSRCSRI 83The report states that the indicator declined to 83.
• Taiwan Q2 GDP+12.9% YoYAbove the consensus estimate of 10.5% but below Q1's +14.6%, driven mainly by investment.
• June listed-company revenue+52% YoYAbove May's +45% YoY; sales tracked from April through June reached 103% of consensus Q2 estimates.

Impact & implications

For portfolios, the Taiwan market does not present a signal for indiscriminate short-term reduction in risk assets; rather, differentiation is becoming more pronounced. TSMC continues to support the index, while foreign selling pressure on technology stocks is clear, but ETF and local fund inflows are cushioning the downside. Earnings growth and upward EPS revisions support fundamental resilience, but elevated valuations, leveraged ETF rebalancing, and margin maintenance ratios make the market more sensitive to shocks. If foreign selling pressure on technology stocks eases, the TSMC ADR premium reversal materializes, or earnings revisions remain positive, the market could recover. Conversely, if volatility triggers same-direction ETF hedging or margin deleveraging, the index could experience amplified downside.

Risks

• Foreign investors may continue to sell technology stocks heavily, particularly TSMC and other semiconductor and technology hardware stocks.
• Expansion of leveraged ETF assets could trigger same-direction hedging flows on days of large market moves, amplifying market volatility.
• If the margin maintenance ratio falls below a key level again, broader deleveraging could be triggered.
• f12m/24m P/E is above historical averages, making valuations sensitive to earnings or interest-rate shocks.
• Cross-Strait and geopolitical risk indicators remain important variables for Taiwan equity risk premiums.
• If the 2Q26 earnings beat and 2027E EPS upgrades fail to continue, fundamental support could weaken.

What to watch

• Whether the divergence in QFII net buying and selling of TSMC, other technology stocks, and non-technology sectors continues.
• The pace of subsequent subscriptions and redemptions for Taiwan-focused ETFs, active ETFs, leveraged ETFs, and dividend ETFs.
• Whether margin loan balances, long margin market value, and maintenance ratios again approach the area below 145%.
• Whether the TSMC ADR premium continues to decline and whether the GSSRTSMR reversal signal materializes.
• Whether 2027E EPS revisions continue to be driven higher by information technology and industrials.
• Whether f12m/24m P/E valuation continues to expand or is absorbed by upward earnings revisions.
• Upcoming macroeconomic data, such as the S&P manufacturing PMI.
• Changes in the Cross-Strait risk index GSSRC SRI and related geopolitical risk indicators.