Taiwan Stocks Clear 40,000 as TSMC Rule Reshapes Fund Flows

Taiwan's benchmark index crossed the 40,000-point threshold for the first time, propelled by a landmark regulatory change and broad-based gains among the market's heaviest hitters. With earnings season in full swing and artificial intelligence demand showing no meaningful slowdown, analysts say the market's bullish underpinning remains intact — even as a divergence between foreign and domestic institutional flows grows harder to ignore.

Taiwan's Financial Supervisory Commission has relaxed a longstanding constraint on domestic investment trust funds, raising the ceiling on single-stock exposure from 10% to 25%. The revised rule is triggered when any one listed company accounts for more than 10% of the Taiwan Weighted Index — a bar that, at present, only Taiwan Semiconductor Manufacturing Co. (TSMC) clears.

The market wasted little time responding. TSMC shares climbed to NT$2,330 — a figure that happens to mirror the company's own stock ticker — while the Weighted Index set an all-time intraday high of 40,755.52 points.

The practical implication is significant: domestic funds are now structurally able to build much larger TSMC positions than before. Aggregated institutional estimates suggest investment trusts could add upward of 100,000 trading lots of TSMC over time, though the pace of accumulation has so far been measured. In the final four trading sessions of April, foreign investors sold more than 78,000 lots net, while domestic funds absorbed roughly 7,700 — broadly consistent with their existing pace and showing no signs of a sudden surge.

The longer-term case for the stock, according to analysts, is straightforward: TSMC's earnings per share are forecast to surpass NT$100 this year, with a further 20–30% growth projected for the following year. At current prices, some institutional research suggests the stock's price-to-earnings ratio is not just reasonable but arguably understated.

The Taiwan milestone did not emerge in isolation. Global equity markets have been in the grip of a broad risk rally, with the Philadelphia Semiconductor Index serving as its most striking illustration.

From a low of 7,084.13 on March 30, the SOX rose on 17 of 18 subsequent trading sessions, surging past the 10,000-point mark to an all-time high of 10,624.21 — a maximum gain of 49.97%. The S&P 500 and Nasdaq Composite also set new records, clearing 7,200 and 25,000 points respectively. The Dow Jones Industrial Average has rebounded but has yet to reclaim its prior peak, leaving it as the relative laggard among the major U.S. indices.

Earnings have played a meaningful role in the mood. Intel delivered results that beat expectations, sending its shares up 23.6% in a single session — the stock's largest one-day gain in 39 years and enough to push it above levels last seen at the height of the dot-com bubble. The other side of the ledger offered a note of caution: reports suggesting OpenAI fell short of certain revenue and user-growth targets prompted some investors to question whether AI-driven optimism has run ahead of fundamentals.

Both Taiwan and the United States are in the middle of a dense reporting window. Nvidia — widely treated as the bellwether of the AI investment cycle — is scheduled to report on May 20. Taiwanese companies face a mid-May deadline. For markets, the figures themselves are secondary; what investors will be scrutinizing is the forward guidance.

Amid the bullish backdrop, one structural uncertainty is drawing increasing attention: the imminent transition at the U.S. Federal Reserve. Kevin Warsh, President Trump's nominee to succeed Jerome Powell as Fed chair, is set to take office in May.

Historical data compiled by Barclays, covering every Fed chair transition since 1930, shows that the S&P 500 has posted average peak-to-trough declines of roughly 5%, 12%, and 16% in the one-, three-, and six-month windows following a new chair's appointment. Those drawdowns are steeper, on average, than those seen over any randomly selected twelve-month period. The bank's research noted that while investors are debating Warsh's perceived hawkishness, the real test for markets may not arrive until after May.

The longer arc of the data offers some reassurance. Looking at the five Fed chair transitions over the past 50 years, first-month volatility has consistently been the highest, driven chiefly by uncertainty rather than policy substance. Three-month returns have more often been positive or recovering, and six-month outcomes have been positive in the majority of cases — the exceptions clustering around events such as the 2008 financial crisis. The underlying logic holds: a change in leadership is not inherently directional for markets. What drives outcomes is whether monetary policy is heading toward easing or tightening, not who holds the gavel.

International oil prices briefly touched their highest level since the U.S.-Iran military confrontation, but the episode has had a negligible effect on financial markets. President Trump posted on his social media platform announcing a "Free Movement" operation beginning at 0800 local Middle East time on May 4, permitting civilian vessels flying the flags of non-belligerent nations to withdraw freely or continue normal operations. A ceasefire between the U.S. and Iran has been in place for over two weeks, with negotiations ongoing but producing little concrete progress. Barring a dramatic escalation, analysts expect the conflict to remain a background variable rather than a market-moving force.

For now, the dominant narrative across Taiwan and global markets alike remains artificial intelligence. Regulatory shifts like the TSMC clause are, in part, an institutional acknowledgment of that reality — an attempt to align the rules governing domestic funds with the actual weight that the world's leading chipmaker now carries in the global economy.

(Adapted from Wealth Invest Weekly, Issue 2403. By Huang Chun-chao)