Stock Investing for Beginners EP1: What is the Taiwan Stock Market & How to Start?

Stocks are a household name, and it is believed that most people, more or less, have had experience hearing or trading stocks. For Taiwanese, the most common contact is the Taiwanese stock market. The Taiwan stock market plays a very important role in the East Asia region and is one of the markets that many foreign investors are interested in. This article provides a simple introduction to Taiwan stocks to give readers a basic understanding of Taiwan stocks.

History of Taiwan Stocks

The origins of Taiwanese stocks can be traced back to the Sunji period, when stocks could be purchased through a variety of large and small stock exchanges, the earliest stock market in Taiwan. Later, with the development of the Taiwanese economy and the establishment of the financial system,Taiwan Stock ExchangeFormally established in 1961, the decentralized stock market was brought together and paved the way for the modern development of the Taiwanese stock market. Over the next few decades, the Taiwanese stock market experienced a turbulent development, including the impact of major events such as stock market crashes, the Asian financial storm. In order to improve the transparency and stability of the stock market, the Taiwan Stock Exchange carried out a major reform in 1991, segregating the stock market and indexed investments, such as the large-cap indices presented in the following section, and strengthening the regulatory regime for stock issuance and trading, which improved the stability and fairness of the market. Since then, Taiwan's stock market has developed further, with trading volume and share price climbing. In recent years, the Taiwanese stock market has begun to focus on the development of the technology industry in addition to traditional industries, and has gradually created an international and diversified investment market. Driven by government policies such as open financial markets, Taiwan's stock market has also attracted increasing participation and attention from domestic and foreign investors, making it one of Asia's important investment markets.

Introduction of Taiwan Weighted Stock Index

In order to quickly understand the performance of the stock market (commonly known as the Big Dial), the concept of “index” has been developed in the market to react to the state of the market. The Taiwan Weighted Stock Price Index (TAIEX) is one of the most representative indices on the Taiwan stock market. TAIEX'S CONSTITUENT STOCK IS AN INDEX CONSISTING OF ALL STOCKS TRADED ON THE TAIWAN STOCK EXCHANGE. IT IS CALCULATED USING A WEIGHTED AVERAGE, THAT IS, MULTIPLYING THE SHARE PRICE OF EACH COMPONENT BY THE WEIGHT OF ITS NUMBER OF FLOATING SHARES, AND THEN MULTIPLYING BY AN ADJUSTMENT FACTOR TO OBTAIN THE VALUE OF THE INDEX. THE WEIGHTED AVERAGES CALCULATION CAN REFLECT THE GREATER INFLUENCE OF THE INDEX BY COMPANIES WITH A LARGER MARKET CAP. THE SHARES ISSUED BY THESE TYPES OF COMPANIES ARE ALSO KNOWN AS EQUITY SHARES (SUCH AS TSMC 2330, ETC.) AND TAIEX IS ALSO KNOWN AS THE “MARKET CAPITALIZATION WEIGHTED SHARE PRICE INDEX”.

Introduction of Taiwan Equity Shares

Here is a brief overview of the two largest equity securities companies in Taiwan:

TSMC

TSMC is the largest listed company in the Taiwan stock market and the world's largest chipmaker. TSMC shares have a very large weight in the Taiwanese stock market, accounting for 27.5% of the market capitalization as of March 2023, a gap of up to 9 times compared to second-place Honghai, making it one of the companies with a focus on foreign and corporate interests. Financially, TSMC's revenue and earnings have been solid in recent years. In the great environment of the pandemic, TSMC's annual after-tax net profit still stands at $1 billion, and the world is looking forward to the development of the post-pandemic era. On the technical side, TSMC has always been a world leader in chip manufacturing technology and is far ahead of other major factories in every country. In recent years, TSMC has continuously invested in 5nm and 3nm chip technology and has begun mass production of 3nm chips. In addition, TSMC is actively developing emerging markets such as AI, the Internet of Things, and working closely with a wide range of customers, including Apple's well-known iPhone chips, TSMC's processes. Partnering with the world's largest companies by market capitalization further solidifies our position and importance in the market.

Hung Hai

Honghai is a multinational electronics manufacturing company that mainly produces consumer electronics and computer components, including smartphones, tablets, laptops, televisions and computer components, etc., for which there is a high market demand for these products. At present, the consumer electronics and computer components industry is in a period of rapid development, and market demand is expected to continue to grow in the coming years. In terms of financial performance, Honghai is a company with stable profits and good financial performance. In the fourth quarter of 2022, Honghai's net profit was NT$346 billion, up 27.6% year-on-year, a very good performance for such a large company. Moreover, Honghai has a relative advantage in the field of electronic product manufacturing. Honghai has its own technical patents and own brands, which help the company build a good reputation and brand loyalty in the market. In addition, Honghai has relatively low production costs, which helps to increase the company's competitiveness and profitability. With so many advantages, it is not possible to look too optimistic about Honghai, in fact there are some hidden dangers in Honghai. For example: Honghai has a high concentration of business, and Apple is the main customer. If Apple reduces the volume of purchases to Hung Hai, it will have a negative impact on Hung Hai's operations and financial performance. In addition, there is relatively little investment in Hung Hai's product research and development, which may also affect the company's future product innovation and market share.

How do I buy Taiwan stocks?

To purchase Taiwan stocks, investors must first open a stock trading account and apply to the securities dealer for the right to trade shares. Information such as identity documents, contacts, and bank accounts will be required when opening an account. AFTER OPENING AN ACCOUNT, YOU CAN TRADE VIA THE ONLINE TRADING PLATFORM, APP, OR BY PHONE ORDER PROVIDED BY THE SECURITIES PROVIDER. Before buying and selling stocks, you should do fundamental and technical analysis to understand the situation of the companies and industries you want to invest in, and assess the risks and potential returns of stocks. Investors should also have the most basic knowledge of financial analysis, such as indicators such as profitability, financial structure and cash flow. In conclusion, it is a wise choice to do the footwork class and order it again.

epilogue

Check out the introduction above and believe you will know more about Taiwan stocks! However, we should also remind you that while the risk and volatility of large-cap corporate stocks is relatively low, the stock market is still heavily influenced by U.S. stocks and even macroeconomics. Before making investment decisions, you need to carefully study relevant financial information and market trends, consider individual risk tolerance and investment goals. Most importantly, it is necessary to be patient in investing, do not be frightened by short-term price fluctuations, keep calm and follow your investment strategy to become the last laugh in the stock market.