Taiwan stocks break through the 28K barrier with a net capital inflow of 19.1 billion in a single day. The logic behind this, along with the Fed's rate cut boosting the Asian switch trend

Taiwan stocks closed strongly today, reclaiming the 28K mark, with the weighted index soaring to 28,303.78 points (+1.15%). The three major institutional investors combined net buy exceeded NT$19.117 billion, hitting a recent high. The core driving force behind this rally is not solely the Fed rate cut expectations (probability 96%) nor temporary capital chasing, but rather the result of a global capital reallocation amid major adjustments, with Asian markets being reconfigured.

Major Institutional Investors Move Together, Foreign Investors Lead in Picking Value and Blue-Chip Stocks

Among the three major institutional investors, foreign investors alone bought NT$14.088 billion, continuing a four-day net buying streak, with a total inflow of NT$36.8 billion this week. Their focus is on blue-chip stocks like TSMC (buying 10,500 shares), Hon Hai (5,200 shares), and Nanya Technology (2,500 shares). Investment trusts shifted towards financial sectors, represented by Fubon Financial (3,801 shares), avoiding high-priced tech stocks; proprietary traders targeted memory and PCB concepts, with Walsin Technology (1,800 shares) and Xinxing (1,740 shares) as main targets. The eight major state-owned banks slightly sold NT$2 billion, indicating official funds remain cautious.

Trading volume also expanded to NT$424.744 billion, reflecting increased market participation.

Asian Markets Shift Focus from AI to Financial and Supply Chain Recovery

A more notable phenomenon is the overall capital reallocation in Asian markets. Foreign net inflows this week exceeded US$15 billion, aided by the decline of the US dollar index to 102.5. The Nikkei 225 rose 1.2% to 39,800 points, Korea’s KOSPI up 0.8% to 2,650 points, China’s Shanghai Composite up 0.3% to 3,150 points, and India’s Nifty 50 up 0.9% to 24,200 points.

The logic behind foreign rotation is clear: withdrawing from overvalued US tech stocks and shifting into undervalued financial and consumer stocks. The Japanese banking sector performed the best with a 2.5% increase, reflecting foreign revaluation of safe assets in a low-yield environment. India and Vietnam attracted about US$2 billion each, benefiting from GDP growth momentum (6-7%) and supply chain transfer dividends; foreign holdings in Japan decreased to 40%, focusing instead on banks and value sectors; Chinese manufacturing stocks like CATL rose 1.1%, reflecting recovery expectations in consumer sectors.

Taiwan, as Asia’s largest electronics manufacturing hub, naturally benefits most from this shift.

Sector Rotation Accelerates, Semiconductors, Glass, and PCB Stocks Hit Limit Up

Within Taiwan stocks, sector performance also mirrors this investment logic. The semiconductor index surged 2.31%, with five stocks—Wanghong, Walsin, Vanchip, Siliconware, and Huadong—hitting the daily limit up. Nanya Technology rose 6.86% to NT$163.5. This rally is supported by a 15% increase in DRAM and NAND prices and the start of inventory replenishment.

Glass stocks led with a 4.22% gain, with Taiwan Glass up 4.8% to NT$38.2, and Fuhong Technology up 7.73%, reflecting a rebound in optical component demand. PCB stocks continued their hot streak, with Xinxing up 4.8%, aligned with full order books for AI servers and expectations of global electronics supply chain recovery.

In blue-chip stocks, TSMC rose 2.4% to NT$1,495 (up NT$35 in a single day), contributing over 200 points to the index. Hon Hai and MediaTek gained 0.43% and 1.05%, respectively. Financial stocks rose 0.28%, with Fubon Financial and Taishin Financial both up over 2%, benefiting from the NT dollar appreciating to NT$31.25, reducing currency exchange costs.

Technical Outlook Strengthens but Internal Risks Emerge, 15 Stocks Signal Caution

Despite the bullish sentiment, the rally is not entirely healthy. The Taiwan Stock Exchange has identified 15 stocks to watch, including Nanya Technology, Walsin, Xinxing, Taiwan Glass, Lihpao, Wistron, Inventec, Innolux, Taishin Financial, WIT, Nanya Circuits, Evergreen, among others—mainly semiconductor, PCB, and shipping concepts. The issue is high offset ratios of 30-50%, indicating potential control by major players and short-term short-squeeze risks.

The regulatory basis for these alerts includes abnormal trading and excessive gains. For example, Nanya Technology +6.86% (offset 45%), Walsin hitting the limit up (+10%, high offset), Xinxing +4.8%, all showing signs of retail chasing highs. Historical data suggests such short-term overheating signals often precede corrections; the August 2024 Taiwan index futures limit-down event serves as a warning.

Investment Reminder: RSI Rises to 68, Be Cautious of Profit Taking

On the technical side, the RSI has risen to 68, indicating a somewhat overbought condition. Support is at 28,000 points, with resistance at 28,500. Analysts Liao Bingkun and Chen Yiguang both note that historically, after an 11% decline in November (-2.15%), December has averaged a 4-6% gain, fitting the seasonal pattern of year-end portfolio adjustments. Market estimates suggest Taiwan’s market cap could reach NT$82.5 trillion, with volume returning to NT$4,500 billion.

However, risks should not be ignored. Moore Securities analyst Xie Wen’en warns that year-end profit-taking may tempt retail investors to chase highs. If the upcoming Fed meeting’s core PCE data exceeds expectations, it could trigger a wave of profit-taking and reverse the rally. Investors should reduce positions at highs, focus on fundamentally solid financial and blue-chip stocks like Fubon Financial and TSMC, set stop-losses within 5%, and diversify holdings according to Fed decisions.

Particularly noteworthy is the performance of the Japanese yen at 2500 JPY—Nikkei 225’s rise reflects increased attractiveness of Japanese financial assets in global allocation, further confirming the trend of foreign capital shifting from overvalued tech stocks to undervalued financial assets.

Summary: Bullish but Cautious, Monitor Fed Signals Closely

This rally in Taiwan stocks is not only an extension of the Fed’s dovish expectations but also a deeper reflection of global capital re-strategizing in Asia. Foreign investors are withdrawing from the US tech bubble and reallocating into Asian financial, value, and supply chain recovery sectors. As the electronics manufacturing hub, Taiwan naturally benefits.

However, internal cracks are emerging—watch for stocks soaring, high offset ratios, and signs of major control. These serve as warnings to investors not to chase highs blindly. Maintaining a balanced outlook, closely monitoring tonight’s US data and Fed decisions, is the right approach to seize the year-end market. The 28K support is just the beginning; the real test will come in the next 30 days.