【Taiwan Stock Market Insights】De-leveraging Nears End, Fundamentals to Drive Next Market Phase

Taiwan Weighted Index Performance over the Past 6 Months: (Source: Bloomberg, as of August 5, 2026)

Nomura AM Perspective:

Trading Mechanism Improvements Enhance Efficiency Without Altering Investment Discipline

July saw an unprecedented de-leveraging storm in Taiwan's stock market, sparking widespread debate over the current trading suspension system. Starting August 10, the Taiwan Stock Exchange will implement revised rules, shortening the general suspension period from 10 to 5 trading days and increasing matching frequency to approximately every 2 minutes. Overall, we believe the new system will reduce the duration of liquidity constraints for individual stocks, improve trading efficiency, and allow greater flexibility in capital flows and position adjustments—particularly benefiting small- and mid-cap growth stocks with lower trading volumes. However, from a practical investment management standpoint, these changes primarily optimize trading mechanisms and do not alter fund managers' existing stock selection logic or risk management principles. In other words, investment decisions will continue to be based on corporate fundamentals, valuation reasonableness, and long-term growth potential, and should not shift toward higher short-term trading exposure simply because suspension periods are shorter.

Manager's View:

Market Bullish Factors:

(1) Strong AI Investment: Global tech giants continue to raise their 2026 capital expenditure forecasts, indicating the AI investment cycle has not yet peaked.

(2) Resilient Asian Supply Chains: Ongoing trends of specification upgrades and supply-driven price increases extend corporate visibility to 2028, with Taiwan's supply chain continuing to benefit.

(3) Upward Earnings Momentum: Nomura AM's Taiwan equity portfolio shows a +64% upward revision in full-year 2026 EPS estimates, outpacing major global equity markets.

Market Bearish Factors:

(1) Ongoing De-leveraging: Market margin debt is still being reduced; until margin maintenance ratios stabilize at lower levels, short-term market volatility remains a risk.

(2) Non-Fundamental Noise: Geopolitical risks such as U.S.-Iran tensions, inflation pressures, and interest rate uncertainty continue to exert valuation correction pressure on equities.

De-leveraging Nears Completion, Fundamentals to Lead Next Phase

July's sharp market swings in Taiwan primarily reflected accelerated de-leveraging and renewed market scrutiny of AI-related capital spending efficiency. While speculative sentiment persists and it's premature to declare the index has fully bottomed, the overall market margin maintenance ratio dropped to around 130% by end-July. Since August, the index has rebounded for several consecutive days, suggesting the most intense phase of this de-leveraging cycle is likely over. Meanwhile, recent earnings reports from the U.S.'s four major cloud service providers (CSPs) show continued upward revisions to 2026 capex forecasts, confirming the AI arms race is accelerating. Although concerns about strained corporate free cash flow and extended AI investment payback periods are valid, investors should not overlook the massive business opportunities within the AI supply chain. Based on our ongoing supply chain monitoring, we have not observed order cancellations or significant downgrades. Therefore, rather than blindly chasing short-term rebounds, investors should use this period to review the earnings trends of core holdings, eliminate weaker positions, and focus on companies with high order visibility benefiting from specification upgrades. While stock prices may fluctuate sharply in the short term due to market sentiment, long-term investment performance will ultimately depend on corporate fundamentals.

Note: Economic forecasts mentioned in this article do not necessarily reflect fund performance. Please refer to the fund's prospectus for investment risks.

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Disclaimer

Note: References to individual companies are for illustrative and commentary purposes only and do not constitute stock recommendations. Investors in the fund hold fund units, not the underlying assets mentioned in this article. Direct investment in indices is not possible. The data provided is for historical market statistics only and does not predict fund performance. Economic forecasts do not guarantee fund returns. Investment risks are detailed in the fund prospectus.

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