Taiwan Stocks Hit New Highs, Fubon Warns of High Leverage Risk, Bullish on AI in Second Half

Taipei, July 2 (CNA) The Taiwan stock market surged by 17162 points in the first half of the year, setting a new historical record. Entering the second half, Fubon Securities Investment Trust (Fubon SITC) is optimistic about the market, citing the traditional peak season, new AI product launches, and election rallies as tailwinds. They forecast that the Taiwan stock index could challenge 54500 points by the end of the year. However, they also caution that high leverage in the market has become the biggest risk.

Fubon Financial Holdings held its mid-year 2026 Fubon Financial Trends Forum today. Fubon SITC Chairman Chen Yi-kuang described the first half's stock market performance as "a bull meeting a gray rhino." Despite negative interferences in the first half of the year, such as the US-Iran conflict, major central banks leaning towards interest rate hikes, and market liquidity, the Taiwan stock market's gains have led the world, driven by the unstoppable trend of the AI industry. Statistics show that as of this year, 168 listed and OTC companies in Taiwan have seen their stock prices more than double, with many reaching the "thousand-dollar stock" status.

Looking ahead at the Taiwan stock market's trend, Chen Yi-kuang analyzed that improved corporate profits will provide a solid foundation for the market. In 2026, driven by strong AI demand and price increases across various component suppliers, Fubon estimates that the total profit for Taiwan's listed and OTC companies will reach NT$6.83 trillion, a significant increase of 51.1% from NT$4.52 trillion in 2025.

According to Fubon's statistics, the PER (price-to-earnings ratio) for Taiwan stocks between 2010 and 2025 has generally ranged between 10x and 24x. Chen Yi-kuang extrapolates from this, and with upward revisions to Taiwan's corporate earnings and considering a PER of 24x for the next year, he optimistically forecasts that the Taiwan stock index could challenge 54500 points by the end of the year.

However, Chen Yi-kuang also warned that high leverage has become the biggest risk in the stock market. He cited South Korea as an example, where the stock market has recently experienced frequent circuit breakers. This is because South Korea launched 3x leveraged ETFs linked to popular stocks like Samsung Electronics and SK Hynix, which attracted significant capital. When combined with margin financing, this amounts to a staggering 5x leverage.

Chen Yi-kuang believes that the end of this global stock market rally may not be triggered by an industry recession, but rather by a massive increase in margin financing and leveraged borrowing, leading to a cascade of selling. The South Korean stock market will be an important indicator to watch, potentially serving as the "canary in the coal mine" for the end of the global stock market bull run.

Compared to the South Korean market, Chen Yi-kuang believes that Taiwan stocks, lacking individual stock leveraged ETFs, have a relatively controllable high leverage situation. However, with the stock market booming, the fear of missing out (FOMO) has driven retail investors to increase their positions significantly. As of early June, outstanding margin financing balances on the stock exchange rose to NT$583.9 billion, an increase of about 70% from the end of last year.

Furthermore, observations show a rapid increase in non-purpose loans from brokers. By the end of May 2026, the number of stock loan transactions had jumped to 5.966 million shares, and ETF transactions increased to 9.149 million shares. Estimating based on 60% of market value, the total amount of non-purpose loans from brokers grew from NT$490.9 billion at the end of 2025 to NT$743.5 billion in early June 2026, a net increase of about 50%.

Secondly, Chen Yi-kuang analyzed that funds have poured into the AI wave, causing the annual volatility of the Philadelphia Semiconductor Index to increase significantly from 46% in 2021 to 85% in 2026. Taiwan stocks have a strong AI component, and with the increase in the number of "thousand-dollar stocks" in recent years, each tick has a greater impact on the index. This is reflected in the annual volatility of the weighted index, which has risen sharply from 24% in 2021 to 58% in 2026.

Fubon also reported that in the first five months of 2026, the proportion of trading days with daily amplitude greater than 1% in Taiwan stocks reached 92%, and the proportion greater than 2% was 53%. Both figures are significantly higher than the average values of 61% and 14% over the past five years. Chen Yi-kuang believes that as Taiwan stocks reach historical highs, high volatility will become the norm. (Editor: Yang Kai-hsiang) 1150702

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