Nomura AM Taiwan Equity Insights – Valuation and Positioning Adjustments Accelerate, Seeking Opportunities for Strategic Entry

Taiwan Weighted Index performance over the past 6 months: (Source: Bloomberg, as of 2026/07/29)

Nomura AM Market Perspective:

Two Market Noises, Not to Be Overinterpreted

Recent market noise stems from two sources: first, NVIDIA potentially providing financing support to OpenAI, raising concerns about circular financing and credit risk; second, China's progress in AI models and domestic DUV equipment, sparking fears of intensified global AI supply chain competition. However, at this stage, NVIDIA's credit risk remains manageable given its financing scale and profitability. Meanwhile, China's DUV technology is still in early development, far from wafer fab validation, stable mass production yield, and large-scale manufacturing. Thus, the fundamental impact of both events on the industry is relatively limited. In fact, our recent supply chain checks confirm that AI-related orders have not been canceled or significantly downgraded. Semiconductor and key component capacities remain tight. As long as CSPs continue expanding AI capital expenditures, Taiwan's supply chain will continue to benefit.

Manager's Perspective:

Market Bullish Factors:

(1) Strong AI Investment: Global tech giants continue raising 2026 capex forecasts; the AI investment cycle has not peaked.

(2) Robust Asian Supply Chain: Specification upgrades and shortage-driven price hikes continue, with corporate visibility extending to 2028. Taiwan's supply chain remains a key beneficiary.

(3) Upward Earnings Momentum: Nomura AM's Taiwan equity portfolio forecasts a +64% full-year 2026 EPS growth, continuously revised upward and leading major global markets.

Market Bearish Factors:

(1) Leverage Reduction: Market margin debt is being unwound; until maintenance margins fall to low levels, short-term market volatility persists.

(2) Non-Fundamental Noise: Geopolitical risks (US-Iran tensions), inflation pressures, and interest rate uncertainty continue to pressure valuations.

Valuation and Positioning Accelerate Correction – Seek Opportunities for Strategic Entry

Amid rising market panic and accelerating index declines, the Taiwan Weighted Index's forward 12-month P/E ratio has fallen to its three-year average level. The previous concern that 'Taiwan stocks are too expensive' has now dissipated. Contrary to falling prices, corporate earnings continue to be revised upward. Bloomberg's 2026 Taiwan market earnings forecast hit a record high on July 28. Nomura AM's latest July forecast also raised full-year 2026 EPS growth to +64%, further highlighting the divergence between stock prices and fundamentals. With no signs of slowing fundamentals, continued price declines could push valuations into oversold territory. Corrections driven by market sentiment and positioning pressure often present ideal re-entry points for long-term investors. Therefore, the current investment focus should not be panic selling, but rather strategic positioning for the next market phase. In terms of sectors, priority should be given to the Vera Rubin specification upgrade theme—entering mass production in Q3 with supply chain shipments accelerating—and passive components, which are expected to see significant price hikes in the second half. Both represent promising areas for tracking and strategic entry on dips.

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Note: Information on individual companies mentioned is for illustrative and commentary purposes only and does not constitute stock recommendations. Investors in the fund hold fund shares, not the underlying assets mentioned. Direct investment in indices is not possible; this data is for historical market statistics only, not a performance forecast. Economic outlooks mentioned do not guarantee fund performance. Please refer to the fund prospectus for investment risks.

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