Asian Funds Flow South to Taiwan Stocks: The Financial Stocks and Value Rotation Behind the 28K Reclaim

Fed rate cut imminent, Asian markets are experiencing a major capital shift. The Taiwan Stock Exchange today closed strongly at 28,303.78 points, with the three major institutional investors increasing holdings by NT$19.117 billion in a single day, hitting a recent high. This is not just a simple index rise; it reflects a strategic shift of global funds from the US tech bubble toward Asian financial value stocks.

Foreign Investors Withdraw from US Tech, Taiwan Becomes Asia’s Safe Haven

US high-valuation tech stocks have recently come under pressure, prompting foreign investors to actively reallocate assets. This week, net inflows into Asia exceeded US$15 billion, with Taiwan benefiting the most. The weighted index rose by 322.89 points, a 1.15% increase, with trading volume expanding to NT$424.744 billion, signaling a technical shift to strength.

Foreign investors increased holdings by NT$14.088 billion in a single day, continuing their four-day accumulation in Taiwan stocks, with a total increase of NT$36.8 billion this week. The US dollar index retreated from 103.5 to 102.5, weakening the dollar further boosting emerging market attractiveness. The Nikkei 225 rose 1.2% to 39,800 points, and Korea’s KOSPI surged 0.8% to 2,650 points, but the sector rotation in Taiwan was the most prominent.

Institutional Strategies: Foreign Investors Chase Large Caps, Funds Shift to Financials

The three major institutional investors each have their own clever logic. Foreign investors focus on large-cap and semiconductor stocks, adding 10,500 TSMC shares (contributing over 200 points to the index), 5,200 Hon Hai shares, and 2,500 Nanya Tech shares. Funds are shifting toward financial stocks, increasing holdings of Fubon Financial by 3,801 shares to avoid high-tech stocks at peak levels. Proprietary traders are seizing the opportunity to buy into memory and PCB concepts, with Walsin Technology and Unimicron gaining 1,800 and 1,740 shares respectively.

The shift by funds warrants attention. As the Taiwan dollar appreciates to NT$31.25, the currency exchange costs for financial stocks decrease significantly. Coupled with year-end liquidity and seasonal factors, financial stocks with over 7% dividend yields for ten consecutive years are beginning to attract institutional funds. Fubon Financial and Taishin Financial both rose more than 2%, reflecting the power of this rotation.

Sector Surge: Semiconductors, Glass, PCB Hit Limit-Ups

Sector rotation within Taiwan stocks is intense. The semiconductor index soared 2.31% in a single day, with five stocks—Macronix, Walsin, Vanchip, Siliconware, and Huadong—hitting the limit-up. Nanya Tech rose 6.86% to NT$163.5, benefiting from a 15% increase in DRAM and NAND prices, which boosted inventory replenishment demand. The glass sector followed with a 4.22% gain, with Taiwan Glass up 4.8% to NT$38.2, and Fuhong Tech surging 7.73%.

PCB concepts continued their hot streak, with Unimicron rising 4.8%, reflecting full orders for AI server demand and expectations of a global electronics supply chain recovery. These three major sectors collectively pushed the index higher, but the concentration of gains also introduces risk factors.

Warning Signs: 15 Stocks with High Offset Ratios

Despite the bullish atmosphere, the Taiwan Stock Exchange highlighted 15 stocks requiring special attention due to high offset ratios, including Nanya Tech, Walsin, Unimicron, Taiwan Glass, Powertech Technology, Wistron, Inventec, Innolux, Taishin Financial, Wente, Nanya Circuit, Evergreen Marine, Hon Hai, MediaTek, and TSMC.

These stocks share common features: excessive gains and abnormal trading activity, with offset ratios reaching 30-50%, far above the normal market level of 10-15%. Nanya Tech has an offset ratio of 45%, and Walsin over 50%, indicating potential control by major players and short-term short-selling risks. Although the index has strengthened, internal structural cracks are emerging.

Seasonal and Accounting Logic: 28,500 Points Expected but Caution Needed

Fubon Securities and PGIM Prudential’s analysis indicates that historical data shows a 2.15% decline in November, followed by a 4-6% rise in December. Coupled with traditional year-end accounting flows, reaching 28,500 points seems within reach. Taiwan’s market capitalization has reached NT$82.5 trillion, and the AI profit-driven momentum continues, with trading volume expected to rebound to NT$450 billion.

However, Taiwan stocks’ RSI has risen to 68, in the overbought zone. Support levels are set around 28,000 points, with resistance at 28,500 points. If the core PCE data released after the Fed meeting exceeds expectations, it could trigger a profit-taking wave, and short-term speculative risks should not be underestimated.

How Investors Should Operate

Moore Securities warns that year-end accounting can easily tempt retail investors to chase highs, risking a repeat of the August 2024 Taiwan index futures limit-down tragedy. Investors are advised to follow these strategies:

Reduce holdings on rallies, shift into fundamentally stable stocks with long-term dividend advantages, such as Fubon Financial and TSMC; set stop-losses within 5% to avoid short-term shorting; diversify holdings and monitor the Fed meeting results closely, paying attention to tonight’s US economic data and the upcoming Federal Reserve decisions.

This rebound in Taiwan stocks is essentially a reflection of the global capital flow adjustment in the Taiwan market. Foreign outflows from US stocks, the rotation into financial and value stocks, year-end accounting flows, and multiple factors together drive the index higher. But beneath the prosperity, caution is needed for overheating stocks, high offset ratios, and increased short-term speculation. Investors must find a balance between optimism and caution to navigate the year-end rally safely.