- Foreign funds inject $2.7 billion into Taiwanese stocks in May, reversing a two-month selling streak.
- Renewed optimism around artificial intelligence, fueled by bullish forecasts from AI chipmaker Nvidia, drives the influx of capital.
- Taiwan’s dominant position in the AI value chain attracts global investors, further bolstered by the annual electronics showcase event.
- Despite stretched valuations, Taiwan remains Asia’s premier proxy for the AI boom.
- May sees Taiwan as the top recipient of foreign inflows among emerging Asian markets, excluding China.
- Positive earnings outlook for Taiwanese firms enhances appeal for foreign investors.
- Risks such as delayed Federal Reserve rate cuts or increased cross-strait tensions could impact the tech rally and foreign investment.
Main AI News:
The allure of artificial intelligence (AI) is once again captivating foreign investors, who injected $2.7 billion into Taiwanese stocks in May, marking a reversal from a two-month selling streak. This resurgence in optimism around AI has been a key driver behind the renewed interest in Taiwan’s equity market.
The rebound in sentiment towards chip stocks globally, propelled by another bullish projection from AI chipmaker Nvidia, has played a pivotal role in this shift. Taiwan, with its formidable position in the AI value chain, stands to benefit significantly. This sentiment is further reinforced as tech giants converge on the island for its annual electronics showcase event this week.
Marvin Chen, a strategist for Bloomberg Intelligence, notes that alongside Nvidia’s positive outlook, earlier cautious positioning on Taiwan has waned. Despite stretched valuations, Taiwan remains a premier destination for investors seeking exposure to the AI boom in Asia.
May saw Taiwan emerge as the top recipient of foreign inflows among emerging Asian markets, excluding China. This influx of capital propelled the stock benchmark to record highs late last month, solidifying its position as one of Asia’s top performers in 2024.
With foreign ownership of Taiwan Semiconductor Manufacturing Co. (TSMC), the largest stock with an index weighting of 32%, still below the record levels seen in 2017, there is ample room for further investment. Additionally, a positive earnings outlook for Taiwanese firms augurs well for sustained foreign interest in the market.
While the possibility of delayed Federal Reserve rate cuts or heightened cross-strait tensions could pose risks to the tech rally and foreign investment, the underlying strength of Nvidia and the broader AI/server theme continues to underpin Taiwanese stocks.
Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong, highlights that Taiwanese stocks remain attractive to foreign investors, given their comparatively lower valuations compared to their U.S. counterparts. This ongoing attractiveness, coupled with the growing significance of AI, positions Taiwan as a compelling destination for global capital seeking exposure to the technology sector in Asia.
Conclusion:
The surge in foreign investment in Taiwanese equities underscores the growing significance of artificial intelligence in driving market sentiment. Taiwan’s strong position in the AI value chain, coupled with positive earnings outlooks, makes it an attractive destination for global capital. However, risks such as potential delays in rate cuts or geopolitical tensions pose threats to the tech rally and foreign investor confidence, necessitating cautious monitoring of market dynamics.
