FTSE Russell Insights

Taiwan equity – are fundamentals supporting?

June 19, 2025

11 min

Belle Change

Senior Manager, Global Investment Research, FTSE Russell

Taiwan equity outperformed APAC in 2023 and 2024 but sold off in 1Q25 and April. Valuation became more attractive as a result, but are fundamentals still supportive?

Taiwan equity’s strong performance in 2023 and 2024 was driven by explosive AI-driven demand. However, given an expensive valuation and US tariff-related risks, the Taiwanese market went into a correction period and was further dragged into a bear market in April 2025.
FTSE Taiwan’s valuation normalized to its 10y average level, while key indicators such as ROE and EPS growth, especially within the Tech industry, continue to reflect relatively strong fundamentals. Taiwan equity has therefore become more attractively valued compared to its regional peers.
Capex trends among global tech leaders also remained robust, suggesting a supportive longer-term outlook for Taiwan’s equity, which plays a critical role in the global technology supply chain.

As we discussed in our report last year (Divergence between Taiwan and Korea equity – the global growth bellwethers? (July 2024)), given the explosive AI-driven tech demand since 2023, Taiwan’s high concentration in semiconductors and tech hardware related stocks allowed its equity market to outperform the region in both 2023 and 2024. The Taiwanese equity market appears to have become more of a bellwether for global AI demand, which is relatively independent from the global economic cycle.

Exhibit 1 shows that most equity markets posted negative returns in 2022 as many global central banks began their monetary tightening cycle. — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

The strong AI-driven demand was also reflected in Taiwan’s export data. As illustrated in Exhibit 2, Taiwan saw a strong double-digit growth in tech exports in 2020-2021, largely fueled by increased demand for work-from-home devices during the COVID-19 pandemic. However, Exhibit 1 shows that most equity markets posted negative returns in 2022 as many global central banks began their monetary tightening cycle. At the same time, the fading demand for remote work-related technology contributed to a slowdown in tech export momentum. In 2023, Taiwan’s export growth rebound sharply, boosted not only by rising demand for AI-related chips but also relevant supporting hardware.

Exhibit 2 illustrates Taiwan saw a strong double-digit growth in tech exports in 2020-2021, largely fueled by increased demand for work-from-home devices during the COVID-19 pandemic. — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

In 2023 and 2024, FTSE Taiwan rose 32% and 33%, respectively, in USD terms (Exhibit 1). That said, being the strongest performer among APAC markets, Taiwan equity also became one of the most expensive markets in APAC in 2024, and expensive compared to its own history (Exhibit 3).

Exhibit 3 Taiwan equity also became one of the most expensive markets in APAC in 2024, and expensive compared to its own history — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Following a period of elevated valuations and a lack of new upside catalysts, Taiwan equities traded within a range during the second half of 2024. This was followed by a correction in February and March 2025. The US’s announcement of tariffs on China, Mexico and Canada on February 1st sparked a risk-off sentiment, while the release of DeepSeek’s R1 AI models raised market concern about the demand for non-Chinese AI supply chain. These have further fueled the correction of Taiwanese equities. The FTSE Taiwan Index declined by 13% from its January peak through April 2nd –“Liberation Day” when the US administration announced a new series of tariffs. The correction deepened after April 2nd, triggering a global equity sell-off and dragged Taiwan equities into a bear market. At its lowest point, FTSE Taiwan had fallen as much as 28% from its January peak before rebounding to its year-start level by late May.

This sharp correction has brought valuations back to more reasonable levels relative to regional peers. The 12m forward P/E ratio peaked at 19.2x in June 2024 – a level well above one standard deviation from the 10y average – and fell below its 10y average by March 2025 (Exhibit 4).

exhibit 4 shows The 12m forward P/E ratio peaked at 19.2x in June 2024 – a level well above one standard deviation from the 10y average – and fell below its 10y average by March 2025. — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

As of May 2025, FTSE Taiwan, together with most other APAC equity markets, had recovered from the April sell-off, and was back to the level at year start. The next question is whether the correction was solely due to the expensive valuation, or whether the fundamental outlook has in fact deteriorated meaningfully.

As shown in Exhibit 5, the ROE of FTSE Taiwan increased to 16.1% in May 2025 (vs 12.6% in May 2024). Meanwhile, the valuation went back to a more reasonable level, allowing Taiwan equity to represent a more balanced risk-reward profile for investors compared to other APAC and developed markets.

exhibit 5 shows Exhibit 5, the ROE of FTSE Taiwan increased to 16.1% in May 2025 (vs 12.6% in May 2024). — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

If we break the index down into industries, it tells a similar story – most industries became more attractively valued. Over the past year, the valuation of the Tech industry, which accounted for more than 70% of FTSE Taiwan, became less expensive, while ROE rose from 16.5% to 19.7% as of May 2025.

exhibit 6 shows Over the past year, the valuation of the Tech industry, which accounted for more than 70% of FTSE Taiwan, became less expensive, while ROE rose from 16.5% to 19.7% as of May 2025. — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

When examining another key fundamental indicator, it is true that the EPS growth forecasts has seen a gradual downward revision trend (Exhibit 7). However, a primary driver behind these revisions is the uncertainty surrounding US tariffs, a risk factor not only for Taiwan equities but also for broader regional markets, as highlighted in our quarterly report APAC Financial Markets Spotlight, May 2025 publication. Moreover, despite downward revisions, the EPS growth forecast for Tech industry remained at a level higher than what it was before the 2023 AI-driven upcycle.

exhibit 7 shows When examining another key fundamental indicator, it is true that the EPS growth forecasts has seen a gradual downward revision trend — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

This resilience trend is also observed in the US Tech industry, where much of the global AI demand originates. Exhibit 8 shows that both EPS growth forecasts and net margins for US Tech remain strong. EPS growth forecast for the Technology Hardware and Equipment sector has been particularly high compared to history.

Exhibit 8 shows that both EPS growth forecasts and net margins for US Tech remain strong. — Source: FTSE Russell and LSEG. Data as of May 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

This could suggest that AI-driven demand is structural and is expected to remain a key growth engine for the semiconductor space. This is important given Taiwan’s critical strategic position in the global tech supply chain. It is true that explosive growth is unlikely in the near term as potential tariff-related headwinds could negatively impact overall chips demand and related capex spending. Nonetheless, in the longer term, as noted by TSMC, AI-related demand remains strong and continues to outpace supply, enforcing the view that the industry is positioned for sustained expansion over time. Exhibit 9 and 10 suggest that the capex of the five largest market cap Tech stocks in FTSE USA Index continued to see a strong trend.

Exhibit 9 and 10 suggest that the capex of the five largest market cap Tech stocks in FTSE USA Index continued to see a strong trend. — Source: FTSE Russell and LSEG. Data as of April 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Taiwan equity’s strong performance in 2023 and 2024 was underpinned by structural AI-driven demand, particularly in the Technology industry. While valuation concerns and external shocks — such as US tariff hikes — triggered a temporary sharp correction in 2025, the subsequent rebound and normalization in valuations have restored a more balanced risk-reward profile. Importantly, key fundamental indicators such as ROE and EPS growth forecasts, particularly within Tech, continue to reflect resilience and long-term growth potential. With AI demand proving to be structural and capex trends among global tech leaders remaining robust, Taiwan equities appear more attractively valued than they were a little over a year ago, despite near-term macro uncertainties.

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