Financial regulators in Taiwan have relaxed the single-stock holding limit for funds, triggering a broad market surge that propelled Taiwan Semiconductor Manufacturing (TSM) to a new record high.
On Friday, Taiwan's Financial Supervisory Commission announced plans to raise the maximum allowable holding of a single stock by local equity funds and actively managed ETFs from 10% to 25%. Boosted by this news, TSM's share price surged as much as 4.8% during the session, setting a new historical record. The Taiwan Weighted Index rose up to 3.2%, making it the best-performing major stock index in Asia for the day.
J.P. Morgan believes this policy adjustment could attract over $6 billion in new capital inflows to the Taiwanese stock market. The firm anticipates the Taiwan Weighted Index could potentially rise to 40,000 points, implying an approximate 6% upside from last Thursday's closing level. Concurrently, shares of Taiwanese substrate manufacturers collectively hit their daily upside limits, reflecting a significant uplift in overall market sentiment.
The policy change directly benefits Taiwan Semiconductor Manufacturing. As the AI boom continues to drive its share price higher, TSM's weighting in the Taiwan Weighted Index has exceeded 44%, and it accounts for 13% of the MSCI Emerging Markets Index. The previous 10% single-stock holding limit had prevented many local funds from fully participating in TSM's upward trend.
Vey-Sern Ling, Managing Director at Union Bancaire Privee, stated, "Now that the ceiling has been raised to 25%, these local funds will buy more TSM." He also noted that this move could ultimately help narrow the discount gap between TSM's Taipei-listed shares and its American Depositary Receipts (ADRs). This discount exists partly because converting Taiwan shares to ADRs requires special regulatory approval, a restriction not present for U.S. shares.
The market rally was not confined to TSM. Several major Taiwanese substrate companies hit their daily涨停 limits, including Gold Circuit Electronics, which rose 9.88%, Nan Ya Printed Circuit Board, which gained 9.94%, and Unimicron Technology, which advanced 7.28%. Observers further pointed out that the Taiwan Stock Exchange may need to consider expanding the daily price fluctuation limits.
Despite the buoyant sentiment, analysts have highlighted potential risks. TSM's weighting of over 44% in the Taiwan Weighted Index means the policy adjustment will further intensify concentration risk in the Taiwanese market. Analysts had previously expressed concern that significant volatility in a single stock like TSM could negatively impact the broader market, and the raised holding limit will strengthen this correlation.
Meanwhile, J.P. Morgan strategists have upgraded their rating on Taiwanese equities to Overweight. They cite easing concerns about challenges in AI monetization and sustained improvements in hardware pricing as providing additional fundamental support for the market.
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