Taiex soars over 28% in H1; technical setback expected in Q3

Taipei, June 29 (CNA) The Taiex, the benchmark weighted index on the Taiwan Stock Exchange (TWSE), soared more than 28 percent in the first half of 2024 following a strong showing by artificial intelligence-related tech stocks.

After the solid performance during the past six months, market analysts warned on Saturday that the local main board could suffer a technical pullback. They predicted that the Taiex would make a comeback in the fourth quarter.

On Friday, the last trading session of June, the Taiex rose 126.27 points, or 0.55 percent, to 23,032.25, pushing up the main board by 5,101.44 points. That equates to about 28.4 percent in the six months of the year.

Of the major indexes in the world, the Taiex only trailed the Philadelphia Semiconductor Index in the United States, which surged about 30 percent in the six months after the U.S.-based AI chip designer Nvidia Corp. skyrocketed more than 150 percent in the same period.

Many Taiwanese AI-related tech stocks have closely correlated with Nvidia in terms of their price movements.

For example, contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), believed to supply chips to Nvidia, jumped 62.9 percent in the first half of the year to close at NT$966 (US$29.78) on Friday.

iPhone assembler Hon Hai Precision Industry Co., known as Foxconn on the global markets, soared about 105 percent in the last six months to close at NT$214.00 on Friday. It previously forecasted its AI server sales would grow more than 40 percent in 2024.

TSMC and Hon Hai are the top two stocks in Taiwan in terms of market capitalization and their growth helped drive the broader market sharply higher.

Jeff Chang (張錫), chairman of Cathay Securities Investment Trust Co., said after a high-flying first half of the year, the Taiex is expected to face technical headwinds in the third quarter. This is because significant gains are expected to lead to people selling stocks to pocket profit.

In the past, Chang said U.S. consumer electronics giant Apple Inc. unveiled its latest iPhones in September, which has had a noticeable impact on the Taiex.

However, Chang said, the presence of Nvidia interrupted the peak effects of the July-September period, with profit-taking emerging in the third quarter after the Nvidia upturn.

Still, Chang said, AI development is a long-term trend and with shipments of AI servers powered by Nvidia's latest GPU (graphics processing unit) to start in the fourth quarter, the Taiex is expected to rebound. That strength is likely to continue into 2025.

Echoing Chang, Fan Chen-hung (范振鴻), president of Capital Investment Management, said given TSMC shot up from an intraday low of NT$593 in early 2024 to an intraday high of NT$984 in June, and Hon Hai jumped from NT$104.50 to NT$217.5 in the six months, the two stocks will need some time to consolidate before beginning to climb again.

In particular, Fan said, TSMC is expected to challenge the critical threshold of NT$1,000, meaning the stock could face volatility in the third quarter.

Fan said many stocks on the main board will go ex-dividend in the third quarter, which is expected to cut about 600 points from the Taiex.

In Taiwan, going ex-dividend refers to the date a stock starts trading without the value of its next dividend payment.

Like Chang, Fan also believes in AI development. He said AI-related stocks are expected to attract buying in the fourth quarter amid ample liquidity.

Fan said that given TSMC dominates the global pure-play wafer foundry business and is the only company able to connect suppliers at different stages of the supply chain, as long as the stock moves higher after corrections, the Taiex will follow.

He said it is hard to predict how high the index will hit if TSMC continues to score strong gains after buying resumes.

Chu Yen-min (朱晏民), chairman of KGI Investment Advisory, noted that although AI-related stocks fared well, many others failed to do so in the first half of the year, meaning the Taiex gains were uneven.

Chu said that many AI-related stocks are now trading at historically high price-to-earnings ratios after a recent surge. These high valuations might make them vulnerable to third quarter declines.

AI development has extended from cloud applications to end-user gadgets including AI PCs and AI phones, Chu said.

With Apple planning to introduce AI on its iPhones, next-generation smartphones are expected to encourage consumers to replace their old models with new ones, Chu said, adding local "Apple concept" stocks could benefit from the trend.