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I. Market Structure: Volume Declines but Market Holds, Bullish Framework Intact

Today's Taiwan stock market followed a 'lower opening, oscillating upward' pattern, closing up 191 points with trading volume of approximately TWD 870.1 billion, slightly lower than yesterday.

The weighted index successfully held above the 10-day, monthly, and quarterly moving averages, with short- and medium-term moving averages turning upward, indicating that the bullish structure remains dominant.

The OTC GreTai Index also maintained strength, staying above both the 10-day and monthly lines, suggesting that momentum in small- and mid-cap stocks has not significantly weakened.

Although volume failed to expand following the short-term rally, suggesting possible consolidation, the bullish trend can continue as long as the index holds support around the 43,000 level.

The key forward indicator is the 'price-volume relationship': if volume rebounds above TWD 1.2 trillion and the index breaks past the previous high of 45,881 points, it could challenge prior highs or even set new records.

II. Fundamentals: Taiwan's Economy and Corporate Earnings Remain the Core Bullish Support

AI demand continues to spread across the supply chain—including IC design, foundry, advanced packaging, memory, PCB, and ABF—driving simultaneous growth in corporate revenues and capital expenditures.

July's listed and OTC company revenues were strong, totaling nearly TWD 6 trillion, setting consecutive record highs and confirming robust demand during the third-quarter electronics and semiconductor peak season.

UBS recently raised its forecast for Taiwan's 2026 GDP growth from 9.9% to 11%, driven by exports, corporate capex, and AI spillover effects. If achieved, this would mark the fastest growth since 1987.

Therefore, Taiwan's stock market strength is not merely a liquidity-driven rally but a positive cycle of AI demand, exports, corporate investment, and earnings growth.

III. Positioning: Market Structure Improves After Previous Deleveraging

The prior sharp correction in semiconductor and AI stocks effectively cleared excessive leverage and crowded trades.

With the Korean market stabilizing, reduced concerns over AI-related capex, and foreign investors resuming buying, market instability factors are gradually declining.

Today, all three major institutional investors were net buyers: foreign investors bought ~TWD 22.3 billion, investment trusts bought TWD 3.39 billion, and proprietary traders bought TWD 2.46 billion, supporting the short- to medium-term rebound structure.

Thus, the prior downturn should be interpreted as a correction of high valuations and excessive leverage—not a reversal of AI fundamentals.

IV. Industry Focus: AI Remains the Core Bullish Driver

AI Servers / ASICs / Advanced Processes: Rising AI computing demand continues to drive long-term growth in foundry, ASIC design, advanced packaging, semiconductor equipment, and test interfaces.

PCB / CCL / ABF: Upgrades in high-speed transmission and high-end substrates are boosting demand for Low Dk/Low Df materials, benefiting the PCB, CCL, copper foil, glass fabric, and resin supply chains.

Optical Communications / CPO / High-Speed Networking: Rapidly increasing bandwidth needs in AI data centers reinforce the 'optical replacing copper' trend.

Thermal Management / Power / Data Center Infrastructure: Rising AI power consumption drives concurrent growth in liquid cooling, power systems, thermal solutions, and data center infrastructure.

Memory: HBM, DDR5, and server capacity upgrades, combined with improved NAND supply-demand balance, position memory stocks for price and profit recovery.

Robotics / Physical AI: As AI transitions from virtual computation to physical applications, robotics could become the next major market theme.

V. Stock Selection Strategy: From 'Broad Rebound' to 'The Strong Get Stronger'

The market is shifting from broad index-led rallies to sector rotation and individual stock performance, making stock selection more critical than tracking the overall market.

Prioritize companies with: high order visibility, record-breaking revenues, improving gross margins, stable cash flow, consistent institutional buying, and upward earnings estimate revisions.

Focus sectors: ASIC, PCB/CCL, CPO/Optical Communications, Advanced Packaging, Semiconductor Equipment, Thermal Management, Power, Memory, Passive Components, and LEO Satellites.

For stocks that surged previously but lack fundamental support or show weakening institutional positions, use a 'sell weak, hold strong, rotate at highs' approach during rebounds.

For stocks with strong industry tailwinds, solid fundamentals, and institutional accumulation, adopt a 'buy on dips in stages, avoid chasing intraday spikes' strategy.

VI. Outlook: Volatility is Risk, but Also a Re-Selection Opportunity

The Taiwan market is gradually recovering from the prior panic correction, with the 43,000 level forming solid support and the 45,000–47,000 range remaining a zone of heavy overhead supply. Even if short-term volatility occurs due to oil prices, geopolitical risks, or weak volume, the bullish trend remains intact as long as the 10-day, monthly, and quarterly lines are not decisively broken.

Citi's recent research on AI and semiconductors confirms that AI infrastructure investment continues to expand, with solid demand for advanced processes, ASICs, memory, and related equipment.

Thus, the current core strategy can be summarized as:

'Watch the market trend, analyze price-volume for momentum, track institutional positioning, focus on leading industries, and evaluate individual stock earnings.'

Avoid chasing highs in the short term; be willing to buy on dips during volatility. The core approach—'select quality stocks, focus on leaders, and rotate out of weak performers'—is the most important strategy for navigating the next phase of Taiwan's market.

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Source: Analyst Chen Hsueh-Chin, Luen Yuan Securities Investment Advisory

The company has no improper financial interests in the recommended securities. Past performance does not guarantee future profits. Investors should make independent judgments, conduct careful evaluations, and bear their own investment risks.