Taiwan stocks returned to the 48,000-point mark and hit a record high, becoming the only major stock market in the world to reach the top in the past week

Xie Mingzhi

With the implementation of the Federal Reserve's (Fed) interest rate hike policy, market uncertainty has significantly reduced, and market risk appetite has become more optimistic. Although U.S. bond yields rose again in the past week, the Philadelphia Semiconductor Index rebounded with support from the AI ​​theme. In addition, foreign capital covered Taiwan stocks by more than 55.4 billion yuan for three days in a row. Fund momentum became stronger and encouraged Taiwan stocks to rise strongly. The weighted index returned to the 48,000 point mark and ended at 48,475.74 points, setting a new record high and becoming the only major international stock market to hit a high in the past week. Overall, Taiwan stocks rose 451.14 points in a single week, a weekly increase of 0.94%, showing bullish momentum.

With the support of both funds and AI themes, Taiwan stocks have made a strong attack higher, returning to the 48,000-point mark and hitting a new record high, becoming the only major stock market in the world to reach the top in the past week. (Central News Agency)

Are Fed hawks cooling off? U.S. economy shows resilience

From the perspective of the overall economy, the Federal Reserve raised interest rates as expected in September. Judging from the latest dot plot, there is still a chance of raising interest rates by 1 point during the year, sending a signal that high interest rates will be maintained for a longer period of time, triggering market concerns that financial tightening may cause economic growth to slow down. However, both PCE and core PCE in August were lower than expected, indicating that inflationary pressures are under control and alleviating concerns about short-term interest rate hikes. The ISM manufacturing PMI index in the United States in September was 54.5, expanding for nine consecutive months, setting the longest record since 2022. The new orders index rose to 55.3, and the client inventory index fell to 41.6, remaining at a low level, indicating that companies expect steady expansion in demand and an optimistic economic outlook.

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Prosperity signal turns red for 9 consecutive times, profit momentum spreads and Taiwan stocks rise

Taiwan's economic data is also impressive. In the second quarter, the annual GDP growth rate reached 12.93%, maintaining double-digit growth for three consecutive quarters, setting a new high in nearly 40 years. The boom countermeasure signal has turned red for nine consecutive times, indicating that the domestic economy has maintained strong growth. It is expected that the red light will continue to turn on in September, rewriting the record for the longest red light. In terms of corporate operations, demand for benefits from the AI ​​supply chain exploded, and ASP and gross profit margins increased significantly, driving Taiwanese companies' profits to increase by 110% in the second quarter, the best performance since the second quarter of 2021. It is estimated that the profit margin of Taiwan stocks will be revised up from 42% to 50% this year and to 26% next year, and the profit momentum will gradually spread to more industries, which will also provide strong support for the growth of Taiwan stocks.

As the demand for AI explodes, major CSP manufacturers continue to increase capital expenditures for this year and next year. Although the negative free cash flow once caused market concerns, judging from profit growth and order momentum, AI capital expenditures are gradually being converted into actual profits, indicating that overall demand has not weakened. In addition, AI demand has also extended from model training to inference, AI agent applications, etc., showing that AI specifications are constantly upgrading and driving AI business opportunities to continue to expand. Taiwan is located at the core of the global AI industry. With order visibility and strong future prospects, the profit momentum of related supply chains is expected to continue to increase, which will help the bullish market in Taiwan stocks continue.

Taiwan stocks return to fundamentals, peak season benefits assist bullish operations in the fourth quarter

Observing the two non-violent interest rate hike cycles by the Federal Reserve in 2004 and 2015, Taiwan stocks returned to fundamentals after policy uncertainty was eliminated, and the market quickly stabilized and continued to rise. After the previous correction, the Taiwan stock market has been reshuffled in terms of evaluation and chips. Foreign investors have also recently replenished Taiwan stocks. In addition, the fourth quarter will usher in the traditional electronics peak season. It is expected that with the support of both profit and capital gains, Taiwan stocks can still maintain a bullish bias in the fourth quarter.

From an industry perspective, the expansion of AI capital expenditure has gradually extended from GPU and wafer foundry to the entire hardware supply chain, including AI servers, advanced processes, advanced packaging and testing, PCB/CCL, CPO and other groups. These are all worthy of attention. Investors can focus on stocks with substantial profit support to seize the AI ​​growth opportunities in Taiwan stocks. However, the short-term market situation is still susceptible to negative impacts such as changes in inflation expectations and geopolitical risks. Investors can make good use of ETFs with semiconductor growth themes and interest income protection to participate in Taiwan stocks, so as to increase their resilience during fluctuations, take into account returns, and grasp the potential spread space brought about by the development of AI.

(The author is the manager of Qunyi Semiconductor Earnings (00927))

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