(Bloomberg) — Foreign funds snapped a two-month selling streak of Taiwanese equities in May amid renewed optimism around artificial intelligence.
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Overseas investors bought $2.7 billion of Taiwanese shares, according to Bloomberg-compiled data. That’s a turnaround from when they sold stocks in March and April as Taiwan Semiconductor Manufacturing Co. cautioned over persistent weakness in consumer markets and funds rotated to rival South Korea.
Sentiment in chip stocks has recovered globally following another bullish forecast from AI chipmaker Nvidia Corp. Taiwan’s dominant position in the AI value chain will get another boost this week as tech giants gather on the island for its annual electronics showcase event.
“Alongside Nvidia’s optimism, there was some cautious positioning on Taiwan earlier in the year which has eased,” said Marvin Chen, a strategist for Bloomberg Intelligence. “While valuations are getting stretched, Taiwan is still Asia’s best proxy for the AI boom.”
Taiwan was the biggest recipient of foreign inflows in May among emerging Asian countries excluding China. That helped fuel a rally in its stock benchmark to a record high late last month and pushed the index to become one of the best performers in Asia this year.
Read: Carry Trades Offset AI Stock Inflows in Taiwan Dollar Tug-Of-War
There’s still scope for global funds to keep buying given that foreign ownership of TSMC — the largest stock with index weighting of 32% — is below the record 80% level seen in 2017.
A strong earnings outlook for Taiwanese firms also bodes well for foreign flows into the market. The 12-month forward profit estimate for the Taiex Index has risen by more than 8% this year compared with little changed for the MSCI Asia Pacific Index, according to data compiled by Bloomberg.
A delay in Federal Reserve rate-cuts may still dent the tech rally, while any escalation in cross-strait tensions may deter foreign interest in the island’s stock market.
Read: Taiwan Will Keep Most Advanced Chip Tech At Home, Official Says
“Strength of Nvidia and the underlying AI/server theme continue to support associated stocks in Taiwan,” said Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd. Stocks also remain attractive to foreign investors as they “are a lot cheaper than US counterparts,” he added.
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