Oh, behave yourself. Taiwan’s markets are not following the same path. The MSCI index, which is made up of Taiwanese stocks, has fallen sharply in recent weeks, but unlike its peers in Japan and South Korea, it has not come close to reversing its rise by 2024. Indeed, its year-to-date gains of nearly 28% are more than double those of the S&P 500.
This is largely due to $748 billion heavyweight Taiwan Semiconductor Manufacturing (TSMC), which after a nearly 60% rally this year accounts for just over half of the MSCI Taiwan and is larger than the entire economy. But it is not the only winner from the demand for exposure to the AI-driven market frenzy. To name just one, Hon Hai Precision Industry stock, weighted at 5% in the index, is up 62% this year.
This represents a triumph of tangible gains over vague risks. A cross-strait risk index compiled by Goldman Sachs that counts the number of articles mentioning geopolitical tension between Taiwan and the mainland remains near record highs amid naval and airspace incursions by the Chinese fleet.
That, combined with broader market turmoil, has caused some foreign money to flee. Taiwan’s foreign exchange regulator reported a $1.6 billion drop in reserves for July, which guilty Largely due to capital outflows, the recent global sell-off likely encouraged more foreign operators to pull out their assets.
However, Taiwan’s growing presence in two major benchmarks – the MSCI All World Index and the MSCI Emerging Markets Index – suggests a structural rise. At 2% and 19.4% respectively, those weightings are not only all-time highs for Taiwan, but also bring them close to China’s allocations of 2.6% and 25.1%.
This partly reflects limits on the weighting of Chinese stocks due to a lack of hedging instruments, but bankers say the rally in Taipei has served to revive global demand for exposure to listed Taiwanese companies.
According to Dealogic, this has helped drive more than $6 billion worth of equity and convertible bond sales this year. The head of Asia Pacific banking at a Wall Street bank pointed to a range of buyers, from global investors with long positions to insurers and hedge funds: “Of course, we are proud of our role, but it was not difficult to sell them.”
The rise in Taiwanese stocks is therefore good news for Asian bankers eager for deals. For now, it seems that this does not matter if investors find it strange, given the small underlying size of its market.
Context news
MSCI’s Taiwan index is up 28% this year through Aug. 12.
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