Is Asia's big money rushing in to buy cheap? The truth behind the funds behind Taiwan stocks breaking through 28K

The Federal Reserve (Fed) is expected to cut interest rates in December, leading to a significant shift in global capital flows. The three major institutional investors combined bought a net of NT$19.117 billion today, hitting a recent single-day high and driving the Taiwan Weighted Index up by 322.89 points, a 1.15% increase to stand at 28,303.78 points. Trading volume expanded to NT$424.744 billion. But is this rally a sustained bullish signal, or just a short-term speculative overheat?

Weakening US Dollar Sparks Major Capital Shift to Asia

First, attention should be paid to the synchronized performance of Asian markets. The Nikkei 225 rose 1.2% to 39,800 points, South Korea’s KOSPI increased 0.8% to 2,650 points, China’s Shanghai Composite gained 0.3% to 3,150 points, and India’s Nifty 50 climbed 0.9% to 24,200 points. This is not coincidence but a collective action driven by foreign net inflows exceeding US$15 billion this week.

The US Dollar Index fell to 102.5 amid dovish Fed expectations, prompting international funds to withdraw from overvalued US tech stocks and shift toward Asian financial and value stocks. OECD reports forecast Asian inflows reaching US$50 billion by 2025, and this rotation has just begun. India and Vietnam each attracted US$2 billion, benefiting from 6-7% GDP growth and supply chain shifts; Japanese foreign investment, though reduced to 40%, focused on bank stocks (up 2.5%), reflecting a clear strategy to avoid US stock market bubbles.

Major Institutions Follow the Clues: Foreign Investors NT$14.088 billion, Investment Trusts and Proprietary Trading Show Skills

The detailed movements of the three major institutions reveal their capital allocation logic. Foreign investors bought NT$14.088 billion, marking four consecutive days of net buying, with a weekly total of NT$36.8 billion. They mainly targeted large-cap stocks like TSMC (10,500 lots), Hon Hai (5,200 lots), and Nanya Technology (2,500 lots). These stocks have solid fundamentals and market capitalization, aligning with institutional preferences.

Investment trusts bought NT$1.029 billion, shifting focus to financial stocks like Fubon Financial (3,801 lots), deliberately avoiding high-tech stocks at peak levels, indicating cautious valuation attitudes from professional institutions. Proprietary traders bought NT$4 billion, rushing into memory and PCB concepts, such as Macronix (1,800 lots) and Unimicron (1,740 lots), showing higher risk appetite. The eight major state-owned banks sold NT$2 billion, maintaining a strong bullish consensus.

Sector Rotation: From AI to Low-Valuation Financials and Consumer Rebound

Today’s internal sector performance in Taiwan reflects the capital shift. The semiconductor index surged 2.31%, with Wanghong, Macronix, Vanchip, Silicon Power, and Huadong hitting daily limit-ups. Nanya Technology rose 6.86% to NT$163.5, benefiting from a 15% increase in DRAM and NAND prices and inventory replenishment demand. The glass sector led with a 4.22% gain, with Taiwan Glass up 4.8% to NT$38.2, and Fuhong Tech up 7.73%, indicating a broad recovery in the electronics supply chain.

PCB stocks continued their hot streak, with Unimicron up 4.8%, reflecting full orders for AI servers and a global electronics industry rebound. More noteworthy are the performance of large-cap and financial stocks—TSMC rose 2.4% to NT$1,495 (up NT$35), contributing over 200 points to the index; Hon Hai and MediaTek gained 0.43% and 1.05%, respectively. Financial stocks rose 0.28%, with Fubon Financial and Taishin Financial both up over 2%, benefiting from the NT dollar appreciating to NT$31.25, reducing currency exchange costs.

This rotation indicates funds shifting from solely chasing AI growth stories to a diversified allocation emphasizing valuation and cash flow.

Year-End Portfolio Rebalancing May Continue, but Internal Risks Are Evident

PGIM Prudential analyst Liao Bingkun pointed out that historically, after a 2.15% decline in November, December tends to see gains of 4-6%, with the traditional peak season still in effect. Taiwan’s market cap has reached NT$82.5 trillion, and trading volume is expected to rebound to NT$4.5 trillion. Fubon Investment Advisory Chairman Chen Yiguang said this rotation stems from dovish Fed expectations and year-end rebalancing logic. The technical RSI has risen to 68, in a bullish zone, with support at 28,000 points and resistance at 28,500 points.

However, behind the stability above 28K lies hidden risks. The Taiwan Stock Exchange today identified 15 stocks to watch, including Nanya Technology, Macronix, Unimicron, and Taiwan Glass, many of which are semiconductor, PCB, and shipping concepts. The excessive gains and abnormal trading volumes in these stocks have triggered regulatory alerts, with a high short-term overbought ratio of 30-50%, highlighting potential manipulation and short-squeeze risks.

Nanya Technology’s short sale ratio is 45%, Macronix’s is high, and Unimicron and Taiwan Glass show signs of speculative overheating. Short-term traders chasing gains should be especially cautious. The warning from the August 2024 Taiwan Futures limit-down event still lingers; year-end rebalancing may tempt retail investors to chase high prices.

How Should Investors Respond: Balance Optimism and Caution

Moore Investment Advisor analyst Xie Wen’en recommends reducing positions on rallies, diversifying holdings, and reallocating to fundamentally sound stocks. Fubon Financial and TSMC offer both growth and stability, suitable for year-end allocation. Set stop-losses within 5%, and closely monitor tonight’s US data and the Fed’s decision in the coming days. Seize the tail end of the rally while safeguarding against risks.

Overall, this Taiwan stock rebound is not only an extension of the Fed effect but also reflects Asia’s strategic position in global capital flows. Although foreign net inflows this week exceeded US$15 billion and the three major institutions bought NT$19.117 billion, caution is warranted due to emerging risks in market sentiment and internal structural cracks. Above 28K, opportunities and risks coexist.