Taiwan stocks breach 40,000 then retreat, as experts warn the rally may be testing its limits

After briefly topping 40,000 and surpassing the UK in market value, Taiwan’s stock surge is prompting seasoned professionals to question whether exuberance is outrunning fundamentals.

A record-breaking surge

Taiwan’s benchmark stock index reached a historic milestone on April 27, briefly surpassing the 40,000-point mark for the first time, capping a remarkable rally that has seen the market climb through successive thresholds this year: 30,000, 35,000, and now 40,000.

Yet the euphoria proved short-lived. By April 28, the index had retreated below the symbolic level, driven mainly by profit-taking and continued net selling by foreign investors, according to Yahoo Finance.

The surge nonetheless underscored Taiwan’s market ascent. Over the course of April, the total market capitalization of Taiwanese equities surpassed that of the United Kingdom, a striking shift that reflects the island’s growing centrality in global technology supply chains — particularly in semiconductors and artificial intelligence (AI).

The engine: AI, semiconductors, and market concentration

At the heart of Taiwan’s stock market rally lies the island's dominance in the global chip industry, led by TSMC.

Chang Shun-chiao (張順教), a professor of business administration and former head of an AI research center at National Taiwan University of Science and Technology (NTUST), told TCN that Taiwan's recent growth is inseparable from demand across the AI supply chain, from servers and components to advanced chips and materials. “Orders remain robust, in some cases even outstripping supply,” he said.

Chang said that such strength also reveals a structural vulnerability: concentration risk. TSMC alone accounts for more than 40% of Taiwan’s weighted index, meaning that even modest price movements in a single stock can exert an outsized influence on the broader market.

He added that foreign investors' use of instruments such as American depositary receipts (ADRs) can amplify leverage, contributing to valuation premiums in the market.

Chang told TCN that the rally has also been amplified by domestic dynamics. Government support for capital markets, combined with the proliferation of exchange-traded funds (ETFs), has effectively turned stock investing into a mass-participation activity.

Capital inflows from retail investors have helped push valuations higher, sometimes indiscriminately, Chang said. He noted this created a phenomenon where weaker firms are lifted alongside industry leaders, echoing the local adages that “when one person ascends, even their chickens and dogs rise with them,” and “one single household’s barbecue makes the whole neighborhood smell good.”

Echoes of the past: a “Go-Go Years” moment?

For economist and former legislator Lee Tung-hao (李桐豪), the current rally evokes a historical parallel: the “go-go years” of 1960s Wall Street, a period chronicled in "The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s." 

Lee told TCN that the era was defined by aggressive growth investing, speculative fervor, and a widespread belief that traditional valuation metrics no longer applied, a mindset encapsulated in the phrase “this time is different.”

Lee cautioned that similar psychological patterns may be emerging in Taiwan today. Rapid gains and heightened optimism could create conditions in which asset prices risk detaching from fundamentals.

He added that the “go-go years” are not merely a historical episode but a reflection of the enduring psychological cycles that underpin financial markets. Periods of prosperity tend to give way to exuberance, which in turn sows the seeds of correction, panic, and eventual recovery, he said.

Investor behavior, Lee noted, is often driven by emotion: greed in rising markets and fear in falling ones.

History, he stated, offers a sobering lesson: such cycles often culminate in abrupt corrections.

Beneath the surface: mounting risks

Lee pointed to a constellation of risks that could unsettle Taiwan’s buoyant stock market.

At the micro level, he said, concerns are emerging around the private credit sector, particularly as certain software-as-a-service (SaaS) business models face disruption from AI. A recalibration in these segments could ripple through financial markets.

At the macro level, geopolitical and economic uncertainties loom large, Lee said. A prolonged conflict in the Middle East, coupled with global trade barriers, could rekindle stagflationary pressures — an environment historically hostile to equity markets.

Another risk, Lee added, is the sustainability of the AI-driven boom itself. He said that while Taiwan currently occupies a pivotal position in the global supply chain, much depends on whether this structure endures and whether competitors, particularly in China, succeed in circumventing technological constraints.

Inequality and the limits of prosperity

Beyond market mechanics, the rally is also reshaping Taiwan’s socioeconomic landscape. Lee said that a problem more severe than the aforementioned risks is the polarization of Taiwan's industries and stock market.

Chang told TCN that while the rise of ETFs has enabled broader participation in the stock market, the benefits are unevenly distributed. Large institutional investors and major shareholders capture the lion’s share of gains, while retail investors — often entering late in the cycle — are more vulnerable to downturns.

Chang added that this dynamic risks exacerbating wealth inequality. He said that in periods of volatility, retail investors tend to bear disproportionate losses, while larger players have the resources and flexibility to reallocate capital and capitalize on market swings.

Chang further questioned the sustainability of current valuations, saying that based on earnings per share (EPS), a level closer to 25,000 would be more consistent with fundamentals. The 40,000 level, by contrast, may signal overheating.

A strategic inflection point for Taiwanese professionals

For UK-based entrepreneur Sonny Chen (陳湘陽), an MBA graduate from University of British Columbia who holds a doctoral degree, the implications extend beyond financial markets.

He wrote on social media that the rise of Taiwan’s equities — now eclipsing the UK in market value — marks a broader shift in global economic gravity. Taiwan, propelled by its semiconductor prowess, has become indispensable to the AI era, Chen said.

Chen stated that this moment demands a recalibration of Taiwan’s human capital. As global reliance on Taiwanese technology deepens, the ability to operate fluently in international contexts — linguistically, culturally, and intellectually — becomes critical.

He emphasized that in an era where Taiwan is increasingly a “price maker” rather than a follower, Taiwanese professionals must sharpen their ability to better assess global trends and distill complex information into key insights.

Between opportunity and overreach

Taiwan’s stock market has undeniably entered uncharted territory, propelled by structural advantages in one of the most consequential industries of the 21st century.

Yet the very forces driving its ascent — technological concentration, abundant liquidity, and investor enthusiasm — also carry inherent fragilities.

The message from experts is clear: The rally may be real, but so are the risks. Ignoring them would be perilous.