Nick Gordon here. Sherman Lin, chair of the Taiwan Stock Exchange Corporation, took a little while to get going when I talked to him on a Zoom call over the summer. But he got animated when I asked him what makes Taiwan’s stock market different from, say, exchanges in Singapore and Hong Kong.
“The best way to understand Taiwan is as a technology island,” he said, with an excited smile, before rattling off cities all along Taiwan’s western coast. “We’re like an industrial park…Technology is really in our DNA.”
Lin should be having a good year: Taiwan became the world’s fifth largest stock market by total value in May, behind just the U.S., mainland China, Japan and Hong Kong, according to Bloomberg calculations. But the Taiwan equity market story is, at its core, a TSMC story: The world’s largest chipmaker makes up 40% of the TAIEX, the island’s benchmark stock index.
The TAIEX is up by about 55% for the year so far; TSMC is up by 50%.
That’s why Lin and his colleagues are trying to broaden Taiwan’s appeal, beyond just TSMC to other companies in the AI supply chain, as well as “hidden champions,” profitable companies in sectors that may get overlooked by more electronics-focused investors.
Taiwan’s stock exchange is also pushing companies to strengthen their corporate governance through its “Power Up” program, following in the footsteps of Japan and South Korea. Japan’s drive to get its companies to take shareholder value more seriously—through more transparent disclosures, encouraging share buybacks, and unwinding its complicated cross-shareholding structures—has helped lift its stock market to record highs.
There’s still a long way to go, though: Taiwan raised $3.3 billion over 70 IPOs last year. That was a record for the island’s stock exchanges, but it’s far below Hong Kong, which raised $37.4 billion across 119 deals over the same period.
Taiwan’s stock market can be out of step with the rest of the world, time-wise. For example, the market closes for trading at 1:30 PM. Lin had previously suggested expanding the exchange’s trading hours, only for Taiwan’s top regulator to knock down the suggestion as “not a priority.”
Still, Lin sees the rise of AI, which has lifted valuations for chipmakers and other hardware companies across all of Asia, as an opportunity for Taiwan to lift its profile—one that might run its course in just three years.
“TSMC is undoubtedly Taiwan’s most iconic company,” Lin said. “But our real competitive advantage is not that we have one or two world-class companies. It’s that we have the world’s most complete and competitive AI ecosystem.”
See you next week,
Nicholas Gordon X: @nickrigordon Email: [email protected] Submit a deal for the Term Sheet newsletter here.
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