Taiwan Equity Weekly: TAIEX rebounds, tech stocks lead gains, fund flows diverge but earnings revisions improve

Overview

This report is Goldman Sachs' weekly report on the Taiwan equity market, covering TAIEX performance, sector rotation, foreign and local fund flows, ETF inflows, valuations, earnings revisions, TSMC ADR premium, macro data, and risk indicators. The report shows that TAIEX rebounded on the back of tech stocks, but pulled back on Friday due to escalating US-Iran tensions; meanwhile, foreign outflows slowed, while local and ETF funds continued to provide support.

Core views

The core view is that the Taiwan equity market still has some upside momentum: technology and semiconductors remain the key drivers, macro data are strong, reported 2Q26 earnings growth has been significant, 2027E EPS has been revised upward, and Goldman Sachs' 12-month TAIEX target is above the current level. Constraints are that foreign investors remain net sellers, retail margin financing levels are manageable but maintenance margin has declined, and the rapid expansion of leveraged ETF size may amplify intraday volatility.

Analysis framework

The report uses a multi-dimensional framework including market performance, sector relative returns, fund flows, ETF holdings and inflows, valuation multiples, earnings revisions, high-frequency macro indicators, and risk indices, combined with data sources such as FactSet, TEJ, Bloomberg, EPFR, MSCI, TAIFEX, and TWSE, to conduct weekly strategic tracking of the Taiwan equity market.

Methodology notes

• Market strategySector and index performance monitoring

  Compare the performance of TAIEX, MSCI Taiwan, MXAPJ, and Taiwan sectors

  Use relative returns of indices and sectors to determine the main drivers of this week's gains and identify leading and lagging sectors.

• Fund flow analysisFramework for foreign investors, local institutions, retail, and ETF fund flows

  Observe cash equity, futures, and ETF flows by investor type

  The report separately tracks QFII, local funds, retail investors, ETFs, and futures positions to determine whether the market rise is driven by stable capital or leveraged capital.

• Valuation analysisf12m/24m PE valuation framework

  Forward 12-month and 24-month price-to-earnings ratios relative to historical standard deviations

  The report uses f12m PE of 19.4x and 24m PE of 15.2x, and marks their positions relative to historical mean standard deviations to assess valuation pressure in the Taiwan market.

• Earnings revisionsFactSet bottom-up consensus

  2026E and 2027E EPS revisions and 2Q26 earnings surprises

  Based on consensus estimates, the report tracks earnings revisions across sectors and compares reported company earnings and sales deviations versus market expectations.

• Risk monitoringGSSRTSMR and GSSRCSRI indicators

  TSMC ADR premium reversal index and cross-strait risk indicator

  GSSRTSMR is used to observe whether the TSMC ADR premium has deviated, while GSSRCSRI is used to monitor changes in cross-strait risk.

Asset mapping & comparison

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

• TAIEX

  Core covered index

  Strengths

  Rebounded 2.3% this week, with the 12-month target of 51,000 above the current 43,655, supported by macro data and earnings revisions.

  Weaknesses

  Valuation is at a relatively high level, with f12m PE at 19.4x, and foreign investors are still net sellers.

  Comparison

  Outperformed MXAPJ by 2.5 percentage points this week.

  Risks

  Foreign outflows, geopolitical shocks, leveraged ETF rebalancing, and deleveraging in margin financing.

• MSCI Taiwan

  Performance benchmark for the Taiwan equity market

  Strengths

  Rose 2.9% this week, supported by semiconductors and technology sectors.

  Weaknesses

  Highly dependent on technology and semiconductor weightings.

  Comparison

  Rose in the same direction as TAIEX and significantly outperformed the regional benchmark MXAPJ.

  Risks

  Tech stock fund flows and changes in global risk appetite could amplify volatility.

• TSMC ADR

  Taiwan technology heavyweight and ADR premium monitoring indicator

  Strengths

  TSMC rose about 3% this week, and the ADR premium remained at 12%.

  Weaknesses

  QFII net sold about US$1.1bn of TSMC.

  Comparison

  GSSRTSMR is +0.1, which the report describes as relatively neutral.

  Risks

  ADR premium reversal, continued foreign selling, and semiconductor cycle volatility.

• Taiwan leveraged ETFs

  Market volatility amplifier

  Strengths

  AUM increased to US$12bn, with strong year-to-date inflows.

  Weaknesses

  Rapid expansion in size may increase market volatility.

  Comparison

  Korea leveraged ETF AUM is about US$26bn, so Taiwan's rebalancing flow remains relatively moderate.

  Risks

  If the market moves 5% in a single day, it could trigger about US$1.2bn of same-direction dealer hedging flow.

• Taiwan dividend ETFs and broad-based ETFs

  Channels of support from local funds

  Strengths

  ETFs as a whole saw US$4.8bn of inflows, with both broad-based and dividend products attracting capital.

  Weaknesses

  If yield preference or retail risk appetite weakens, the sustainability of inflows will need to be verified.

  Comparison

  Broad-based ETF inflows of about US$2.3bn exceeded those of active ETFs, leveraged ETFs, and dividend products.

  Risks

  ETF subscription/redemption volatility and changes in retail fund direction.

Key data

• Weekly performance of TAIEX/MSCI Taiwan+2.3% / +2.9%Outperformed MXAPJ by 2.5 percentage points.
• Leading sectorsEnergy +6%, Tech Hardware +4%, Transportation and TSMC each +3%This week's rebound was mainly driven by technology and some cyclical sectors.
• Lagging sectorsMaterials -4%, Health Care and Autos down about 2% to 3%Sector performance was clearly differentiated.
• QFII net selling in cash equitiesUS$2.2bnMainly sold tech stocks, including about US$1.1bn of TSMC and about US$1.2bn of other tech stocks.
• Local fund net buyingAbout US$2bnAcross multiple sectors.
• Taiwan ETF inflowsUS$4.8bnLeveraged ETFs about US$800mn, active ETFs about US$1.1bn, broad-based ETFs about US$2.3bn, and dividend products about US$600mn.
• 2027E consensus EPS revision+0.9%Commodities and technology saw the most positive revisions, while transportation and consumer sectors saw negative revisions.
• Valuationf12m PE 19.4x; 24m PE 15.2xApproximately +1.8 and +0.9 standard deviations, respectively.
• TSMC ADR premium12%GSSRTSMR is +0.1, which the report describes as relatively neutral.
• Cross-strait risk indicatorGSSRCSRI fell to 85The risk indicator declined but still needs to be monitored.
• Taiwan leveraged ETF AUMUS$12bnAbout US$2bn at the start of the year, with YTD inflows of US$7bn and US$3.5bn of inflows during the recent correction.
• Potential hedging flow from leveraged ETFsA 5% single-day move could trigger about US$1.2bn of same-direction dealer hedging flowEquivalent to about 4% of Taiwan's average daily turnover.
• Taiwan margin financingAbout US$15bn; position value about US$25bnAbout 0.8% of market free-float capitalization, which the report considers manageable for the overall market.
• Reported 2Q26 earningsNet profit +107% YoY, +21% QoQAmong reporting companies, 57% beat earnings expectations and 27% missed; median earnings and sales surprises were +17% and +4%, respectively.
• Macro dataIndustrial production +23% YoY, retail sales +8% YoY, export orders +59% YoYJune data were stronger than the previous readings, and industrial production was also above Goldman Sachs' forecast of +18%.
• TAIEX index level and targetCurrent 43,655; 12-month target 51,000Data as of July 24, 2026, implying about 16.8% potential upside.

Impact & implications

For investors, the report implies that the Taiwan market remains in an environment supported by upward earnings revisions, a recovery in tech stocks, and passive/ETF fund support, with the index target indicating medium-term upside potential. However, the fund flow structure is not unilaterally optimistic: foreign investors are still reducing cash equity tech positions, retail maintenance margin levels are declining, and leveraged ETF expansion may create same-direction rebalancing pressure on large-volatility days. Therefore, portfolio management needs to pay attention simultaneously to technology weight exposure, ETF fund flows, and geopolitical shocks.

Risks

• Escalating US-Iran tensions led to a market pullback on Friday.
• QFII remained net sellers of Taiwan cash equities, especially technology and TSMC.
• The rapid expansion of leveraged ETF AUM may amplify same-direction trading pressure on days of sharp volatility.
• Maintenance margin in margin financing has declined, and if it falls below key levels it could trigger broader deleveraging.
• Taiwan market valuation is relatively high, with f12m PE at about +1.8 standard deviations.
• Cross-strait risk still needs to be monitored, although GSSRCSRI has fallen to 85.
• Earnings revisions for transportation and consumer sectors are negative, indicating divergence in sector fundamentals.

What to watch

• Upcoming consumer confidence data and Q2 GDP.
• Whether QFII shifts from net selling to stability or inflows, especially in technology and TSMC fund flows.
• Subsequent subscriptions and redemptions of Taiwan ETFs, especially leveraged ETFs, active ETFs, broad-based ETFs, and dividend ETFs.
• Whether maintenance margin in margin financing approaches or falls below risk thresholds such as 160% and 140%.
• Whether 2027E EPS revisions can spread from commodities and technology to more sectors.
• Whether the TSMC ADR premium and GSSRTSMR deviate from the neutral range.
• US-Iran developments, cross-strait risk, and changes in regional risk appetite.