Taiwan Stock Index on the Brink of Technical Correction Due to AI Stock Sell-Off

The Taiwanese stock benchmark narrowly avoided a technical correction on Friday: a global sell-off of AI-related stocks hit one of the world's most AI-dependent markets. Taiex closed at −2.5% after falling to −3.5% intraday, trading more than 10% below the record high on October 6. The index remains near correction territory as investors factor in rising borrowing costs, massive AI expenditures, and weaker-than-expected results.

Context

The sell-off highlights the depth of concern surrounding the AI theme. Taiwan, with its extensive tech supply chain, is considered by many investors a better way to play this theme than South Korea. But even this did not save Taiex from nearing a correction. A new wave of disappointing reports in the U.S. overnight accelerated the flow of funds from AI stocks to defensive assets like Treasuries.

Analyst's position

“The sell-off in Taiwan is mainly driven by sentiment due to global movements in AI stocks,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “While Taiwan's fundamentals are improving, it's unwise to stand in the way of a charging herd, even if it's heading in the wrong direction.” According to him, the commitment of hyperscalers to CapEx plans and improved visibility for companies strengthen the case for Taiwan.

Who dragged it down

TSMC and Delta Electronics made the largest contributions to Taiex's decline on Friday, with their shares losing 1.8% and 9.8% respectively. MediaTek fell by 3.2%.