Investors Investing Heavily in Taiwan Post AI and Semiconductor Manufacturing Surge

Investors are ignoring geopolitical tensions to pile into Taiwan stocks, with foreign inflows reaching their highest level in years as a result of soaring artificial intelligence and chipmaking stocks. The wave of enthusiasm, which has also helped the tech-heavy Nasdaq to its best first half in 40 years, is raging as top firms all along the computer hardware and software supply chains dominate the market like no other.

Net foreign buying of $12 billion in the six months to June is the highest since the first half of 2008, and Taiwan's benchmark index performance is the best in Asia, up 20% in US dollar terms this year.

The gleaming rally has been unaffected by Taiwan's slowing economy, repeated displays of force by the Chinese military, or the war in Ukraine, which highlights what is at stake in the Taiwan Strait.

Rather, investors say it's stronger because the stalemate deters Chinese action and risks can be managed by keeping positions liquid with an eye on a possible quick exit. Market observers believe the AI rally will continue.

"What we are seeing now is a tactical trade, which tends to be based on a shorter-term investment horizon before the tech sector's valuation peak," explained Carlos Casanova, Asia senior economist at Union Bancaire Privee.

"A potential escalation of events in the Taiwan Strait down the line is less relevant for these investors," he said. China claims democratically governed Taiwan as its own territory, a view strongly contested by the government in Taipei.