By Hudson Lockett
HONG KONG- Taiwan’s markets are not falling in line. The MSCI index comprised of Taiwanese stocks has dropped sharply in recent weeks but, unlike its peers in Japan and South Korea, has not come close to reversing its rise for 2024. Indeed, its year-to-date gains of nearly 28 percent are more than double those of the S&P 500
That is thanks in no small part to the $748 billion heavyweight Taiwan Semiconductor Manufacturing (TSMC) which after an almost 60 percent rally this year accounts for just over half of the MSCI Taiwan and is larger than the entire economy. But it is hardly the only winner from demand for exposure to the AI-driven market frenzy. To name just one, shares in Hon Hai Precision Industry weighted at 5 percent in the index, are up 62 percent this year.
This represents a triumph of tangible profits over indeterminate risks. A Cross-Strait Risk Index compiled by Goldman Sachs counting the number of articles that mention geopolitical tension between Taiwan and the mainland remains near all-time highs amid naval and airspace incursions by China’s fleet.
That, combined with broader market ructions, has sent some foreign money running.
Taiwan’s foreign exchange regulator reported a $1.6 billion drop in reserves for July that it blamed largely on capital outflows. The recent global selloff likely encouraged more foreign traders to cash out.
Yet Taiwan’s growing presence in two major benchmarks — the MSCI All World Index and MSCI Emerging Markets Index— suggests a structural rise. At 2 percent and 19.4 percent , respectively, those weightings are not only record highs for Taiwan but also brings them close to China’s allocations of 2.6 percent and 25.1 percent .
That partly reflects limits on Chinese equities’ weightings due to a lack of hedging instruments. But bankers say the rally in Taipei has served to reinvigorate global demand for exposure to listed Taiwanese companies.
