Rapid Rise or Risky Business? Inside Taiwan’s ETF Boom Amid AI Surge
The Taiwan exchange-traded funds (ETFs) market is witnessing a surge in investment as investors seek exposure to the artificial intelligence (AI) supply chain. This influx of funds, however, has sparked concerns among analysts and regulators, particularly as the sector experiences heightened volatility.
The rapid influx of money into ETFs is reshaping the landscape of Taiwan’s $2 trillion market, which holds strategic importance in the geopolitical arena. While the surge in investment underscores growing interest in the AI sector, regulators and ETF managers caution against the potential risks, especially for less experienced investors who may face losses in case of market downturns or geopolitical tensions with China.
According to data from Taiwan’s Financial Supervisory Commission (FSC), the value of Taiwan’s ETF sector stood at T$4.74 trillion ($145.8 billion) as of March, marking a significant 77% increase from the previous year. This surge in value outpaced the 20% rise in the benchmark equity index, indicating substantial inflows into ETFs.
The rapid pace of investment, often fueled by borrowed funds, has contributed to driving the market higher. However, money managers express concerns about the sustainability of this rally, questioning how much further Taiwan stocks can rise amid the current fervor.
The spectrum of ETFs available to investors encompasses broad index trackers, dividend funds, thematic and sector-specific funds, appealing to both local and foreign investors. Yet, recent market turmoil, triggered by geopolitical tensions and warnings of subdued global demand from industry leader TSMC, has highlighted the inherent stability risks associated with ETF investments.
On April 19, the benchmark index experienced a sharp decline of 3.8%, its most significant single-day loss, prompting substantial net selling by foreign investors. Notably, ETFs were among the top ten most-sold stocks, including prominent names like Yuanta Taiwan High Value Dividend ETF and UPAMC Taiwan High Dividend Momentum ETF.
In response to the escalating frenzy, regulators remain vigilant to safeguard investors’ interests. Hwang Howming, a vice director-general of Taiwan’s Financial Supervisory Commission, emphasizes a cautious approach to ensure investor protection, particularly in the ETF space.
The surge in ETF investment has captured public attention, with reports of individuals, including students and Buddhist nuns, engaging in ETF trading. Some investors have even resorted to leveraging personal assets, such as mortgaging their homes, to capitalize on the market rally.
Frank Hung, a Taipei hotel manager, views ETFs as a convenient and lucrative investment avenue, citing the AI boom and high yields as key attractions. However, analysts caution that while ETFs offer access to promising sectors like AI, they are not immune to market fluctuations and may pose risks, especially during periods of volatility.
Despite the current market exuberance, Peter Hong, manager of Capital TIP Customised Taiwan High-Tech Dividend & Growth ETF, emphasizes the long-term growth potential of Taiwan and U.S. ETFs in the AI sector. However, investors must remain vigilant and prepared for potential market downturns or reversals in the future.
As reported by Reuters in their recent article
