Foreign selling pressure on Taiwan stocks hits a record as retail investors buy through ETFs and margin loans

How much did foreign investors sell, and where was the pressure concentrated?

From 6 October through the 22nd, foreign investors net sold 29.5 billion US dollars of Taiwan stocks over 12 consecutive trading days, the largest and fastest consecutive selling streak on record. Year to date, cumulative foreign net outflows from the cash market reached 65 billion US dollars, while net short futures positions increased by about 25 billion US dollars, with reductions spanning cash equities and derivatives.
In the latest week, foreign investors net sold 7.6 billion US dollars in the cash market, including 2.8 billion US dollars of TSMC and 4 billion US dollars of other technology stocks. Selling pressure was concentrated in the technology sector. Over the same period, however, foreign investors' net short futures positions fell by 3.8 billion US dollars, showing a divergence between cash-market withdrawals and futures positioning.
The Taiwan Weighted Index fell 2.3% during the week; other semiconductor stocks fell 4.5% and technology hardware fell about 3%, while telecommunications rose 2.5% and banks gained about 1%. Goldman Sachs characterized the performance as a rotation into dividend sectors.

Local funds net bought 2 billion US dollars during the week, focusing on technology stocks; retail investors net bought 4.8 billion US dollars in the cash market. Domestic investors thus became important buyers of foreign investors' sales, but retail investors also reduced their net long futures positions. Cash purchases and changes in overall risk exposure need to be considered separately.
Taiwan-related ETFs recorded net inflows of 6.6 billion US dollars during the week across broad-market passive, active, leveraged and dividend products. Goldman Sachs concluded that retail risk appetite remained active and buying was not confined to defensive products. ETF subscriptions and cash-market transactions are measured on different bases and should not be added together.
Institutional positioning remained cautious: Goldman Sachs prime brokerage data showed that hedge fund selling stabilized in the latest week after positions were reduced in early October. As of the end of September, global and emerging-market mutual funds, among others, were still reducing their Taiwan allocations, with positions relative to benchmarks near a decade low.

Outstanding margin loans reached a record 15.4 billion US dollars and continued to rise during the stock market decline in October. Leveraged ETF assets also rebounded to a record 13 billion US dollars. The latter was driven mainly by new inflows, indicating that investors were still actively increasing leveraged exposure as share prices weakened.
Goldman Sachs also emphasized that margin accounts still had a buffer: the market value of margin positions was about 26 billion US dollars, with a maintenance ratio of 170%, above the low of less than 150% in July and the 130% margin-call threshold shown in the chart. Record leverage and accounts nearing forced position reductions are assessments at two different levels.

As share prices fell, the market consensus for Taiwan equities' 2027 earnings per share was revised up 0.7% during the week, driven mainly by the commodities, transportation and technology sectors. Goldman Sachs set a 12-month target of 57,500 points for the Weighted Index, implying about 25% upside from the 46,041 points cited in the report.
Actual business activity continued to grow, but at a slower pace: listed-company revenue rose 47% year on year in September, down from 55% in August; cumulative revenue from 7 through September reached 102% of the third-quarter market consensus. Industrial production rose 19.2% year on year in September, below the market forecast of 24.7% and the 23.5% recorded in August, as technology production cooled further.
Valuations also differ by horizon: MSCI Taiwan's forward 12-month price-to-earnings ratio was 16.6 times, 0.5 standard deviations above its historical mean; the forward 24-month ratio was 13 times, 0.4 standard deviations below the mean. The lower longer-term valuation depends on future earnings growth materializing; most Taiwan companies will report third-quarter results from late October to mid-November.