Schroders on Taiwan Stocks: 67% Earnings Growth to Boost Q4, First Taiwan Stock ETF to Enter Market

Taiwan's stock market has recently experienced significant volatility. Today (28th), Schroders Investment Trust held its outlook briefing for the second half of the year. Irene Yu, Deputy Head of Fund Investment, pointed out that although short-term positioning has been affected by foreign investor adjustments and margin financing corrections, Taiwan equities are supported by solid fundamentals. With Taiwan's GDP forecast revised upward for the third time to 9.64%, and projected corporate earnings growth for 2026 surging to 67%, the current pullback makes valuations more attractive. Schroders expects that after third-quarter consolidation, the fourth quarter could see a new high.

Yu analyzed that the recent rally in Taiwan stocks is not a blind expansion but reflects upward revisions in earnings. Market expectations for Taiwan's 2026 earnings growth have risen from 30% at the beginning of the year to 67%—a figure described as 'astonishing and rare.' Even though Taiwan's current price-to-earnings (PE) ratio is around 23x, when adjusted to 2026's projected earnings, it drops to approximately 16.4x, close to the long-term average and considered 'very cheap.'

Regarding recent market trends, portfolio manager Kevin Ko used the metaphor of 'the old man and the dog,' suggesting that while the dog (stock price) may run far ahead, it will eventually return to the old man (fundamentals). Yu added that historically, September has the highest probability of correction, and third-quarter consolidation helps settle margin financing positions. Margin debt has already corrected about 10% from its peak, marking a positive start.

Chen Szu-ming, CEO of Schroders Taiwan, shared that the team is not only committed to keeping its active funds in the top performance tier but is also preparing to launch its first Taiwan stock ETF. The product is currently in preparation and awaiting regulatory approval.

Looking ahead, Schroders believes that as Q3 earnings and guidance are released, the market will begin 'boldly forecasting' profits beyond 2027, potentially reigniting a new high in the fourth quarter.