Taiwan’s Market Fortunes Are Tied to TSMC Like Never Before

(Bloomberg) -- Taiwan’s largest stock is so dominant it’s even underpinning a surge in the local currency.

Of the more than $4 billion that foreign investors have sent into Taipei-listed equities this year, about 60% has landed with Taiwan Semiconductor Manufacturing Co. Inflows this month have helped the Taiwan dollar strengthen nearly 1.4%.

TSMC makes up nearly 23% of the Taiex benchmark, the biggest weighting globally on any domestic index by a technology company, according to data compiled by Bloomberg. Its prevalence shows just how much is riding on its fortunes. Apple Inc.‘s primary chip supplier reported better-than-expected earnings Thursday and gave an upbeat fourth-quarter revenue forecast. Still, shares saw some profit-taking Friday and ended down 0.2% even with a late rebound.

The company influences Taiwan’s “stocks, foreign exchange, and the economy,” said Yih-kuang Chen, chairman of First Capital Management Inc. Continued foreign inflows to TSMC shares “would boost the Taiwan dollar” and may cause concern at Taiwan’s central bank, he said.

Trading at nearly 20 times projected 12-month earnings of late, TSMC shares have been at their most expensive in a decade. The stock has also recently shown signs of being technically overbought, defined as a reading of more than 70 on the 14-day relative strength index, which tracks the persistence and magnitude of price moves.

“Part of TSMC’s valuation now is supported by fund flow,”said Peter Chan, analyst at CGS-CIMB Securities, whose reduce rating on the stock makes him one of its few bears. “But fund flow often hinges on geopolitical events.” He thinks the stock’s valuation is too high.

Its market cap surpassed $250 billion for the first time this week, putting it just behind Samsung Electronics Co. The stock is up 19% from an August low, with a better-than-expected debut for the latest iPhones boosting sentiment toward companies in Apple’s supply chain.

Semiconductor equipment suppliers gained Friday in Taipei, boosted by TSMC’s plan to spend as much as $15 billion on technology and capacity in 2019. Foxsemicon Integrated Technology Inc. rose 7.1% while Marketech International Corp. and Trusval Technology Co. both jumped 9.9%.

--With assistance from Mengchen Lu and Samson Ellis.

To contact the reporter on this story: Cindy Wang in Taipei at hwang61@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kevin Kingsbury, David Watkins

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