A technician at a TSMC fabricating facility checks silicon wafer production
TSMC has a de facto monopoly on manufacturing the fastest computer chips in the world © Bloomberg

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Taiwanese exchange traded funds with significant exposure to Taiwan Semiconductor Manufacturing Company have seen sharp gains as overseas investors place large bets on the chipmaker.

Fubon Taiwan Technology ETF is the most exposed to TSMC, with nearly 60 per cent of its assets invested in the company. The ETF’s share price jumped 6 per cent in a week after news that foreign investors were placing big bets in the chipmaker.

The Fubon FTSE TWSE Taiwan 50 ETF’s weighting to TSMC is approaching 50 per cent. Yuanta/P-shares Taiwan Top 50 ETF has a 45 per cent exposure to the chipmaker.

Three more ETFs, namely the Yuanta/P-shares Taiwan Electronics Tech ETF, Yuanta/P-shares MSCI Taiwan ETF and Fubon MSCI Taiwan ETF, also put more than 40 per cent of their capital in the TSMC stock, while the Fubon TWSE Corporate Governance 100 ETF has a 39 per cent exposure.

This article was previously published by Ignites Asia, a title owned by the FT Group.

All the ETFs made substantial gains after the news on November 14 that Berkshire Hathaway, headed by veteran investor Warren Buffett, had purchased $4.1bn worth of American depositary receipts in the Taiwanese giant in the third quarter.

Buffett’s investment comes alongside investments by Tiger Global Management and Bridgewater Associates, which both raised their stakes in TSMC in the third quarter. Soros Fund Management also bought $2.07mn worth of ADRs in the same period.

Regulatory filings show that four of the world’s biggest hedge funds also increased their TSMC holdings in the third quarter, buying ADRs worth a collective $418mn.

With a de facto monopoly on manufacturing the fastest computer chips in the world, TSMC’s wide economic moat stems from “its cost advantage and intangible assets, which are realised from its leading position in process technology, or nodes”, said Phelix Lee of Morningstar in a recent research note.

Analysts believe the latest investment rush from global fund giants could signal thawing in tensions across the Taiwan Strait.

“[The investors] even thought that the Sino-US relations would get better, so they invested in TSMC,” Andrew Wong, chair and chief executive of Anli Securities, said.

“Of course, there is a chance they may be wrong, but they have already spent billions investing in TSMC, and it is true that Sino-US relations are improving recently,” Wong noted, referring to the recent meeting between the two countries’ leaders at the G20 summit in Indonesia earlier this month.

Lee at Morningstar is confident in TSMC’s growth: “Even with its dominant market share, we believe the company can deliver above-industry growth through a higher proportion of more valuable specialty products.”

Nevertheless, there has been a slowdown in the global chip industry as countries have eased Covid-induced lockdowns, driving down demand for electronic goods.

New US restrictions on Chinese access to chipmaking technology have also dented growth prospects. Even after last week’s gains, TSMC shares on both Taiwanese and US bourses are down more than 20 per cent this year.

TSMC, meanwhile, has been granted a one-year waiver from the US curbs.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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