- The Taiwan index is experiencing a selloff as the impact of higher oil prices, rise in global bond yields and AI selloff hit the markets.
Current Setup
Bias: Cautiously bullish medium term / bearish near term.
The Taiwan Index is a major structural beneficiary of the AI semiconductor cycle. However, the heavy weighting toward AI/semiconductor/technology stocks leaves the index particularly vulnerable to higher bond yields and lower valuations for growth/tech stocks. Furthermore, investor reassessment of AI spending amid the current geopolitically induced inflationary environment is an additional headwind for the index.
The Taiwan Index (TAIEX) is trading around 45,773, down approximately 350 points in this week’s trading. The decline comes as higher oil prices put pressure on technology and semiconductor stocks. Index-related pressure from higher oil prices and inflationary concerns adds to existing concerns about the sustainability of the AI capex cycle.
While the long-term and medium-term structure remains bullish, the near-term bias is now cautiously bearish, especially as the markets have heavily priced in a potential Fed rate hike in the 16 September decision.
What are the Current Macro Drivers for the Taiwan Index (TAIEX)?
1. AI-Sector Selloff
The Taiwan index hosts the Taiwan Semiconductor Manufacturing Company (TSMC) and other tech and AI stocks. This renders the TAIEX heavily exposed to the global AI cycle. As oil prices rise, renewed concerns about the sustainability of the AI capex cycle among major US AI companies have hit the markets, instigating a selloff.
2. TSMC: A Key Market Driver
Taiwan’s status as a global semiconductor hub remains the TAIEX’s fundamental strength. Tech company MediaTek has launched its new semiconductor products using TSMC’s advanced 2nm and 3nm technology. This has reinforced Taiwan’s standing as a major player in the AI and next-gen chip supply chain.
3. Higher Global Bond Yields
US 10-year Treasury yields have breached the 5.00% resistance benchmark, their highest level in 19 years. This comes as Brent crude prices remain above $105. Higher oil and bond yields increase the opportunity cost of high-growth tech stocks. This scenario encourages profit-taking in the TAIEX’s largest semiconductor names, deepening the selloff.
Taiwan Index: Forecast Scenarios
Base case→ Consolidation: As long as investors continue to reassess the valuations of the big semiconductor names on the TAIEX, the scenario favors price staying in the 45,000–46,000 range.
Bull case→ Recovery above 46K: If semiconductor companies post strong earnings and their American peers remain resilient amid the selloff, the door opens for a recovery toward 47,000–48,000.
Bear case→ Deeper Selloff: If the global AI stock selloff accelerates, a further decline below 45,000 exposes 44,000–44,300.This is more likely if Brent crude stays above $105 or US bond yields keep pushing into record territory.
Technical Outlook
- Resistance: 47,200 – 49,240
- Next resistance: 53,880
- Support: 42,570
- Major support: 40,500
A sustained break above the 47,200-49,240 resistance zone would unlock the uptrend’s continuation. In this scenario, the 27% Fibonacci extension at 53,880 becomes the new upside target.
On the flip side, a breakdown of the 42,570 support could expose the major support at 40,500. Below this level, a further decline takes price toward the 39,450 – 40,500 zone.