Foreign Institutional Investors Pull Billions from Taiwan Stocks amid Tech Sector Challenges
Foreign institutional investors have withdrawn a substantial amount of funds from Taiwan stocks, as the tech sector in the country faces hurdles. According to the Financial Supervisory Commission, there was a net fund outflow of $5.81 billion by foreign investors last month, marking the fifth-largest monthly outflow since 2011. This follows a net outflow of $4.7 billion in July.
The significant fund outflow can be attributed to several factors. The TAIEX, Taiwan’s main stock index, dropped about 511 points or 2.98% as investors sought to secure profits on artificial intelligence-related stocks. Additionally, the hawkish stance taken by the US Federal Reserve during the annual Jackson Hole Economic Symposium, along with the financial difficulties faced by major Chinese property developers, further dampened market sentiment.
Foreign institutional investors sold a net $3.87 billion worth of shares on the local stock market last month, marking a monthly high for this year. As a result, the TAIEX suffered heavy losses. However, data from the commission reveals that foreign investors still maintained their confidence in the local market throughout the first eight months of this year. Despite the recent outflows, there has been an aggregate net fund inflow of $13.83 billion, primarily driven by a strong rebound in tech stocks in line with global markets.
As of the end of August, foreign institutional investors held a 38.2% share of the combined market capitalization on both the main board and the over-the-counter (OTC) market. This indicates that foreign investors still see value in the Taiwanese market.
The performance of listed companies on the main board and the OTC market remains solid, despite global challenges. In the first seven months of this year, these companies generated a combined revenue of NT$2.132 trillion, the third-highest in Taiwan’s history. This achievement is noteworthy considering weakening global demand, high inflation, and the aggressive rate hikes implemented by major central banks worldwide.
Taiwan’s stock market continues to attract investors due to its favorable dividend yields and relatively low price-to-earning ratios. As of the end of July, the average cash dividend yield in Taiwan stood at 3.53%, which is among the highest in the world. Additionally, the average price-to-earnings ratio was only 16.8, indicating that the market is still attractive.
Despite the recent outflows, the foreign institutional investors’ continued confidence and significant presence in Taiwan’s market bode well for its long-term prospects. As the tech sector regains its footing, the country’s stocks have the potential to deliver attractive returns. However, investors will need to navigate ongoing challenges in the global economic landscape to capitalize on these opportunities.