亚洲量化策略：台湾股市的崛起主导地位——我们是否处于拐点？

Asia Quant Strategy: The rising dominance of Taiwan equities - The strong rally since last year has resulted in Taiwan becoming the biggest exposure inMSCI EM Index (~25%) and MSCI Asia ex Japan Index (28%). The comfort so far had comefrom the fact that the rally was driven more by earnings vs. multiple expansion. However, webelieve we are close to an inflection point as the mounting risk from record high earningsexpectations, all-time high valuations, peak concentration risk and decade high dispersion Rupal Agarwal+65 6326 7641rupal.agarwal@bernsteinsg.com Cheng Zhang, CFA, CQF+852 2123 2636cheng.zhang@bernsteinsg.com Taiwan is now the most dominant exposure in the regional benchmarks and funds: As of April end 2026, Taiwan is the biggest exposure in MSCI EM and MSCI Asia ex Japanbenchmarks, accounting for ~25%/28% of the index. GEM funds, on an average have22.3% allocation in TW, 20% in China, 17% in KR and 10% in India. Since April, TW hasseen the highest foreign flow (+16bn USD) in Asia, outside Japan, and it is already at record Strong fundamentals but isn’t it all priced-in?:Fundamentally the market looks quitestrong with high ROIC (11.5%), high innovation and the strongest growth exposure in Asia(3yr earnings growth expectations of 29%CAGR). While the robust earnings upgrade cyclehas supported the market rally so far, the bullish expectations are now near historical high,raising risk of upgrade cycle peaking. The valuations have already been quite stretched - The tech sector at record high valuations & earnings:In our earlier note, we highlightedhow the strong momentum in Taiwan and Korea is facing record high concentration andcorrelation risk. Taiwan’s top 5/10 names account for 66%/72% of the market cap whileSemis and Tech Hardware, account for 84% of the market cap. Both Semis (35x fwd. PE)and Tech Hardware (26x fwd. PE) are trading at record high valuations and even upward The melt-up in growth and momentum stocks is at high risk of inflection:Growthand momentum stocks have ripped up YTD, generating 60% to 70% alpha (up more than100% on an absolute basis). Taiwan high momentum portfolio is now trading at record highvaluations, compared to its own history and relative to market while the earnings upgradeshave also reached record high levels. Growth stocks, are also quite stretched, though stillshy of 2020/2024 peak valuations; however bullish expectations are already at all-timehigh. While the crowding in growth stocks is already at record high, for momentum thecrowding risk is lower. Even quality stocks in Taiwan (which have generated 15% alpha DETAILS TAIWAN IS NOW THE MOST DOMINANT EXPOSURE IN REGIONAL BENCHMARKS/FUNDS As of April end 2026, Taiwan is the biggest exposure in MSCI EM index, accounting for ~25% of the index (TSMC accountingfor 14%) and in MSCI Asia ex Japan Index, accounting for 28.1% of the index (TSMC at 16%). In line with Taiwan’s growingdominance in regional benchmarks, the allocation for Asia ex Japan Funds and Global Emerging market funds in Taiwan hasseen a sharp increase over the last few years. Taiwan allocation is now at record high levels for Asian and GEM funds - Asia exJapan funds on an average have 22.1% allocation to Taiwan vs. 21.9% for China, 19% for Korea and 9% for India. GEM funds,on an average have 22.3% allocation in TW, 20% in China, 17% in KR and 10% in India. YTD, Taiwan has seen foreign fund flow EXHIBIT 4:Global Emerging Market funds allocation to TW has seen a much sharper rise since 2019, now reachingrecord high of 22.3% vs. 20% in China, 17% in Korea and 10% in India EXHIBIT 5:YTD, Taiwan market has seen foreign outflow of -3bn USD due to extreme outflows seen in Mar (-29bnUSD). However, since April, it is the only Asian market outside of Japan to see net inflows (Q226 inflows of 16bnUSD). Given extreme inflow again, we expect foreign flow to slow down TAIWAN - STRONG FUNDAMENTALS BUT ISN’T IT ALL PRICED-IN? Taiwan has always been a high quality and high innovation market, and now it offers quite attractive growth opportunities forinvestors too. Taiwan has high ROIC of 11.5%, which indicate stronger return on invested capital than most of Asian peers(though still behind India/Indonesia) (Exhibit 6) ROIC of TW market has seen improvement compared to its 5yr/10yr average of11%/10% respectively. Taiwan is also one of the leading innovation-driven economies in Asia, and along with China, it is nowin the top tier of R&D intensive markets. Over the past ten year, the market has experienced a structural upgrade, and its R&Dto sale ratio has grown steadily from 1.7% to 2.7% now.(Exhibit 7). One major change for Taiwan has come from the AI wave -given TW offers an extensive AI exposure for investors across Semis and Hardware, we now see Taiwan as the leading growth EXHIBIT 7:Taiwan ranks second in the region on innovation, behind China. Its R&D to sale ratio is above thehistorical averages, which reflects accelerating investment on innovation i