Herd Mentality? Investment Firms Warn of Overheated Taiwan Market, Advise Against Chasing Highs

The Taiwan stock market is experiencing a period of intense activity, with the main index repeatedly testing the 42,000-point mark. This rapid ascent, a gain of 10,000 points in less than five months, is fueled by continued strength in AI-related sectors and robust export data. However, this impressive run has also led to a significant divergence from the 90-day moving average, exceeding 18% – a level not seen since 2009. This divergence, coupled with a notable increase in margin financing, is raising concerns among some investment firms about a potential 'herd mentality' and increased market volatility. While the underlying economic fundamentals, supported by strong export performance and a booming AI industry, remain solid, caution is being advised. The high market heat, with daily turnover often exceeding NT$1 trillion, and the prevalence of day trading, suggest a market that is becoming increasingly speculative. Investment firms are urging investors to avoid chasing rallies and to consider reducing leverage. The focus, they suggest, should remain on AI concept stocks and long-term investments, with the market expected to trade within a range of 40,000 to 43,000 points in the coming week. This cautious optimism reflects a balancing act between acknowledging Taiwan's technological leadership and managing the risks associated with a rapidly appreciating market.

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The market is hot, with daily turnover on the stock exchange exceeding NT$1 trillion becoming the norm.