Capital Outflows From Asian Equities Led by Taiwan and South Korea
According to Bloomberg statistics for October 26 to 30, foreign investors net sold Taiwan stocks reaching US$79.06 billion, the largest among Asian equities, while South Korea saw a small net sale of US$3.89 billion, with only Thailand, India and Malaysia maintaining small net purchases. Since the beginning of this year, the Taiwan and South Korea stock markets have already seen foreign net sales totaling US$1045.76 billion and US$2193.57 billion respectively, with no sign of the trend stopping. Foreign investors net sold over NT$1 trillion of Taiwan listed stocks in October, intensifying pressure on equity and currency markets and making continued short-term corrections hard to avoid.
Taiwan Stocks Fell 1.8% in a Week, Losing Half-Year Moving Average
In terms of weekly performance, Asian equities generally declined except for South Korea, India and Malaysia. Indonesian equities continued to plunge due to an MSCI downgrade warning, still slumping 7.03% in a single week. Taiwan stocks fell 1.8% last week, breaking below the half-year moving average, with the cumulative gain this year narrowing to 56.10% but still ranking first among Asian equities. Recently the AI sector has faced short-term selling pressure, with visible corrections in the U.S., Taiwan and South Korea, and even Chinese equities.
Institutions Say Fundamentals Have Not Weakened
Guo Ming-yu, manager of the 00413A E.SUN Taiwan Key Technology Active ETF, said that AI, semiconductor and technology stocks had accumulated relatively large gains earlier, and some investors began taking profits, making a short-term correction inevitable. Although affected by international capital flows and valuation corrections in the short term, Taiwan exports, AI supply chain orders and corporate capital expenditures remain strong, indicating this correction mainly reflects market sentiment and valuation adjustments, while real-economy fundamentals have not weakened in tandem. Technology companies expanding capital expenditures and the year-end peak consumption season will support the economy through year-end, although international geopolitics, major central bank monetary policies and the impact of a higher base on exports still require cautious attention.
Focus on U.S. Midterms and Strategy
The key focus this week is the November 3 U.S. midterm elections. According to Bloomberg statistics since 1970, the S&P 500 index has risen an average of 14.1% in the half year after midterm elections, outperforming non-midterm election years. Further analysis shows that during Republican presidencies, if Democrats control both houses of Congress, the S&P 500 index has risen an average of about 16% in the year after the election, and if Congress is split between the two parties, it has risen an average of about 23%.
Chang Li Yi-han, manager of the E.SUN Global New Supply Chain Fund, said the outlook for U.S. third-quarter earnings remains divergent, with energy and information technology revenue and profit forecasts continuing to lead other sectors, and no comprehensive reversal of the AI and technology industry trend has been seen yet. Large cloud operators still maintain high AI capital expenditures, with cloud and AI service revenues continuing to grow. Short-term technology stock valuations have corrected by more than 10%, and high-quality technology leaders will present phased buying opportunities. Going forward, investors should watch whether large cloud operators cut AI capital expenditures, whether 2027 semiconductor EPS estimates decline, whether AI company credit spreads widen, and whether free cash flow can bottom out and improve. Operationally, investors should neither fully exit AI nor bottom-fish all at once after a single-day plunge, but can build positions in batches in semiconductor and technology leaders with positive free cash flow, low debt, order visibility and pricing power, while reducing positions in highly leveraged AI data centers, companies with excessive customer concentration and unprofitable companies, and moderately raising allocations to software, cybersecurity and cash.