Cathay Asset Management's Cheng Li-Cheng on Taiwan Stocks: No Short-Term V-Shaped Recovery Expected, '40% Active, 60% Passive ETF' Strategy Offers Balanced Approach for Second Half

After Taiwan's stock market plunged over 3,000 points in July, investors are closely watching the outlook for the second half of the year. Cathay Asset Management's Senior Deputy General Manager and Spokesperson Cheng Li-Cheng stated today (7th) that short-term market volatility is being driven by overseas deleveraging and tight funding conditions, leading to disordered investor positioning. However, he emphasized that Taiwan's stock market fundamentals remain solid, with leading foundry companies' profitability expected to extend through 2030. He believes that the second half of the year is unlikely to replicate the strong bullish momentum seen in the first half, and investors should not expect a rapid 'V-shaped recovery.' Instead, investors should avoid predicting market peaks and adopt a regular investment strategy combined with a '40% active, 60% passive ETF' allocation to achieve a balanced offensive and defensive posture during market volatility.

Regarding the outlook for the second half and the medium to long term, Cheng pointed out that recent earnings briefings have shown many industries and individual stocks outperforming market expectations. Taking the leading foundry company as an example, its AI-related business growth visibility now extends to 2030. As this company accounts for nearly 40% of the weighted index, the clear long-term profit growth trend of this 'national guardian mountain' supports a bullish long-term market structure.

However, he cautioned that the second-half market performance is unlikely to fully 'copy and paste' the strong upward trend of the first half. Recent investor positioning requires time to stabilize, and tight funding conditions have moderately restricted margin financing, leading to reduced short-term trading volume. Investor confidence recovery and position realignment will take time. Investors should not predict market peaks or expect an immediate 'V-shaped recovery.' It may still take some time, and short-term stock-specific volatility risks should be closely monitored.

In the face of a highly volatile market environment, Cheng advised that investors who struggle to precisely time stock selection and market entry/exit should leverage ETFs for diversified and gradual portfolio building. Using rule-based passive ETFs as the core holding, accounting for about 60%, such as those combining 'high dividends' and 'growth potential,' can provide a defensive foundation for overall assets.

Considering that index-based products cannot cover all aspects, actively managed ETFs can be used as satellite holdings, accounting for about 30% to 40%, to deliver stronger offensive power and explosive potential, accurately capturing market rotation opportunities.

Cheng further noted that under the premise of a favorable long-term trend, significant market corrections present ideal opportunities to gradually build positions. Investors can participate in market growth through a 'dollar-cost averaging' approach, reducing the risks associated with single-stock concentration or poor timing decisions.

Overall, Cheng emphasized that short-term corrections do not alter the long-term bullish market structure. With solid fundamentals and ongoing investor positioning recovery, adopting a balanced ETF portfolio strategy and returning to long-term fundamentals represents a relatively advantageous approach in the current environment.