The only Asian giant with a market value exceeding one trillion dollars! Institutions forced to “underweight” TSMC

Since the beginning of this year, TSMC’s share price in Taipei, Taiwan has soared by 36%. This surge has pushed its weighting in the Taiwan Weighted Index to nearly 43%, and its weighting in the MSCI Emerging Markets Index and the MSCI Asia Pacific (excluding Japan) Index has also reached a record high of nearly 12%. However, according to Bloomberg’s report on November 12, this situation directly affects funds tracking MSCI indexes with assets exceeding $100 billion. Due to the EU’s UCITS regulations and local Taiwanese laws, which generally set a single stock holding cap at 10% of net asset value, these actively managed funds are unable to allocate enough to TSMC, thereby creating a significant risk of underperformance. In contrast, passive index funds usually possess greater flexibility to match benchmark weights. “We continue to underweight TSMC, not out of investment conviction, but due to structural constraints,” said Roxy Wong, Senior Portfolio Manager at BNP Paribas Asset Management, “For us, the real risk lies in the underweight itself.” To address this challenge, some fund managers have turned to investing in companies such as Hon Hai Precision or ASE Technology, which are considered part of TSMC’s value chain, or used derivatives such as futures and options to hedge. However, this strategy has clear limitations. “It is very challenging for portfolio managers to manage the risk from such a large index component,” noted John Tsai, Portfolio Manager at Eastspring Investments Ltd. Analysts believe that while these alternative targets may benefit from the same AI-driven factors, it is difficult for them to replicate TSMC’s strong pricing power, profit quality, or business resilience resulting from its dominant position in advanced chip manufacturing. As Roxy Wong stated, it is extremely difficult to find a proxy that can replicate TSMC’s market position, growth trajectory, and stability profile. Risk Warning and Disclaimer The market involves risks; investment should be made with caution. This article does not constitute personal investment advice nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Any investment made accordingly is at your own risk.