Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / Why Taiwan’s Stock Market Is Outperforming in 2026
Transcript
- Lucas: If you look at the major equity markets so far in 2026, there’s one that’s quietly blown past just about everything else. I’m talking about Taiwan. Luna: Taiwan? Not the S&P 500 or even India? Lucas: Nope. The Taiwan Stock Exchange Weighted Index is up more than twenty percent year-to-date. Compare that to the S&P 500 sitting at 7,501 — basically flat over the same stretch. Even emerging market funds are trailing: the iShares MSCI Emerging Markets ETF, ticker EEM, is up about 4.8 percent in the last week alone, but Taiwan is lapping it over the full year. Luna: That’s a huge divergence. What’s driving it? Lucas: Two things. First, the obvious one: Taiwan Semiconductor Manufacturing Company. TSMC accounts for roughly thirty percent of the entire index weighting. When TSMC goes up, the whole market follows. And TSMC has been on a tear because of the AI buildout. Every hyperscaler — Microsoft, Amazon, Alphabet, Meta — is ordering their latest chips, and TSMC is the only manufacturer that can reliably produce them at scale. Luna: Right, the AI chip demand. But that’s been true for a couple of years now. What changed in 2026? Lucas: Good question. The difference this year is that TSMC is finally bringing its three nanometer and upcoming two nanometer capacity online in volume. They’ve been investing tens of billions into fabs in Taiwan, Arizona, and Japan. That capacity expansion is translating into revenue growth — and investors are rewarding it. But there’s a second engine that people overlook. Luna: Which is? Lucas: The broader Taiwanese supply chain. It’s not just TSMC. Companies that make chip packaging equipment, specialty chemicals, printed circuit boards — they’re all benefiting. Taiwan has an entire ecosystem that supports the semiconductor industry. When TSMC grows, the whole cluster grows. So the rally isn’t just one stock; it’s a network effect. Luna: That makes sense. And the data backs it up. The iShares MSCI Taiwan ETF, ticker EWT, which tracks the broader market, is up about 7.2 percent in just the last five trading days. That’s a strong weekly surge. Lucas: Exactly. And it’s not just equities. The Taiwan dollar has been strengthening too. It’s trading around 6.76 yuan per US dollar — that’s a slight appreciation. When foreign money flows into Taiwanese stocks, they have to buy the local currency, which supports the exchange rate. Luna: So it becomes a virtuous cycle: strong market attracts foreign capital, which strengthens the currency, which in turn makes the market more attractive to global investors. Lucas: Right. And Taiwan’s current account surplus — the latest data from October 2025 showed a surplus of about 190 billion dollars — gives the currency a solid fundamental underpinning. The country exports far more than it imports, especially in high-tech goods. Luna: But there’s always a risk side. Taiwan’s geopolitical situation hasn’t changed. China’s stance remains the same. Lucas: That’s the elephant in the room. Any escalation in the Taiwan Strait could reverse these flows overnight. But so far, the market is pricing in a kind of ‘business as usual’ scenario. Investors seem to believe that the economic interdependence between China and Taiwan — plus the global reliance on TSMC — acts as a deterrent. Luna: Though that’s a fragile assumption. We saw Iran close the Strait of Hormuz again this weekend. Geopolitical shocks can happen fast. Lucas: True. But for now, the momentum is strong. One interesting stat: foreign investors have poured close to 15 billion dollars into Taiwanese equities just this year. That’s a record pace. A lot of that is passive money through ETFs, but there’s active money too. Luna: And what about the domestic economy? Are there any warning signs? Lucas: The main concern is how narrow the rally is. TSMC and a handful of tech names drive the index. If TSMC hits a speed bump — say, a demand slowdown or a production hiccup — the whole market could correct. But right now, order books are full. The AI buildout is still in its early innings, and TSMC is the only game in town for advanced logic chips. Luna: So the bull case rests on AI demand continuing to grow. And the bear case is geopolitical shock or a concentration risk. Lucas: Exactly. But there’s also a structural story. Taiwan is benefiting from the broader trend of supply chain diversification. Companies want to reduce dependence on mainland China, and Taiwan — despite the political risk — is seen as a more reliable partner for advanced manufacturing. That’s been a tailwind for years, and it’s not going away. Luna: It’s almost like Taiwan has become a must-have exposure in any global tech or emerging market portfolio. The question is whether the valuation justifies it. Lucas: And that’s where things get interesting. The trailing price to earnings ratio for the Taiwan index is around 18 times. That’s not cheap on a historical basis — the long-term average is closer to 15. But when you adjust for growth — the PEG ratio — it looks more reasonable because earnings are growing at roughly 15 to 20 percent annually. Still, it’s priced for perfection. Luna: So the risk is that any disappointment in earnings could hit the market hard. But if the AI boom continues, Taiwan could keep outperforming. Lucas: That’s the bet a lot of global investors are making. And so far in 2026, it’s paying off. Luna: You know, conversations like this are exactly why I love putting this show together. If you’ve found these insights useful in your work or investing decisions, a couple of dollars a month genuinely helps keep these episodes ad-free and independent. You can support us at buy me a coffee dot com slash fexingo. It’s a small gesture that makes a big difference for us. Lucas: Yeah, absolutely. Every little bit helps us keep digging into stories like this one. And we really appreciate everyone who’s already chipped in. Luna: So back to Taiwan. What should listeners watch for in the next few months? Lucas: Keep an eye on TSMC’s quarterly earnings, due in July. Any guidance on capital spending or demand will move the entire index. Also watch the trade-weighted US dollar index — it’s around 119.5 now, down from earlier in the year. A weaker dollar generally supports emerging markets, including Taiwan, because it makes their exports more competitive and eases dollar-denominated debt. Luna: And of course, any geopolitical headlines. The Strait of Hormuz situation is a reminder that risks can flare up anywhere. Lucas: Right. But for now, Taiwan is a standout story in a market that’s searching for growth. It’s a reminder that sometimes the best opportunities aren’t in the headline indices but in specific, well-positioned economies.