Taiwan Relaxes Fund Holding Limits, TSMC Reaches Historical High

Taiwan's financial regulatory authority relaxes the fund holding cap, triggering a broad rally in Taiwan's stocks, with TSMC's share price hitting a historical high.

On Friday, the Financial Supervisory Commission of Taiwan announced plans to raise the holding cap for domestic equity funds and actively managed ETFs on a single stock from 10% to 25%. Boosted by this news, TSMC's share price reached its highest intraday increase of 4.8%, setting a new record, and the Taiwan Weighted Index rose by 3.2% at one point, becoming the strongest performing major index in Asia that day.

JPMorgan Chase believes this policy adjustment could bring more than $6 billion in new capital inflows to Taiwan's stocks and expects the Taiwan Weighted Index to potentially reach 40,000 points, implying about a 6% upside from last Thursday's closing price. Meanwhile, Taiwan's substrate stocks all hit their upper limit, and market sentiment has fully warmed up.

Policy relaxation directly benefits TSMC

The core beneficiary of this regulatory adjustment is TSMC. Due to the continuous increase in TSMC's share price driven by the artificial intelligence boom, the weight of this stock in the Taiwan Weighted Index has exceeded 44%, and its proportion in the MSCI Emerging Markets Index has reached 13%.The original 10% holding cap on a single stock prevented many local funds from fully participating in the upward trend of TSMC.

Vey-Sern Ling, Managing Director of Union Bancaire Privee, said, "Now that the cap is raised to 25%, these local funds will buy more TSMC." He also pointed out that this move will eventually help narrow the discount gap between TSMC's Taipei-listed shares and its American Depositary Receipts (ADRs) — the existence of this discount is partly due to the special regulatory approval required to convert Taiwan stocks into ADRs, which is not the case for US stocks.

This market movement is not limited to TSMC alone. Several major substrate companies in Taiwan all hit their upper limit on that day, including Gold Electronics up 9.88%, Nanya PCB up 9.94%, and Unimicron up 7.28%. The observer also pointed out that the Taiwan Stock Exchange may need to consider expanding its daily price fluctuation limit.

Concentration risk remains a concern

Despite the high market sentiment, analysts also pointed out potential risks. TSMC's weight of over 44% in the Taiwan Weighted Index means that this policy adjustment will further exacerbate the concentration risk in Taiwan's market. Analysts have previously expressed concerns that significant fluctuations in a single stock like TSMC could drag down the overall market, and the increase in the holding cap will make this correlation even tighter.

Meanwhile, JPMorgan strategists have upgraded the rating of Taiwan's stock market to overweight, citing easing concerns about artificial intelligence monetization challenges and the continued increase in hardware pricing, providing additional support for the fundamentals of Taiwan's stocks.