The escalation of the conflict between Israel and Iran resulted in substantial declines in the U.S. stock market last Friday, along with significant increases in international oil and gold prices. This week, the focus will be on the Federal Reserve's (Fed) interest rate decision. Following the failure of TSMC's dividend exclusion, the TSMC ADR fell by 2.01%.

Investment firms state that the current advantage of the Taiwan stock market lies in its stable trading environment. Since the rebound at the end of April, the margin balance has only increased by approximately NT$14 billion. They anticipate that the correction will not be too deep and that, under seasonal pressure, the short-term trend may revert to the monthly line. Before the settlement of the June Taiwan index futures, there still remains an opportunity for the index to rise.

The Fed is set to announce its latest interest rate decision at 2 a.m. on the 19th, and the market widely expects the policy interest rate to remain unchanged while focusing on the latest economic forecasts and dot plots from officials. PGIM’s high-growth fund manager, Liao Bing-Kuan, pointed out that recent domestic and international variables still exist, including Trump reopening the tariff issue, which could disrupt investor sentiment, and the ongoing tensions in the Middle East. Domestically, the impact of the currency appreciation in May will gradually become apparent across various industries, indicating that the technical indicators of the index continue to maintain a bullish alignment, but the failure of TSMC's dividend exclusion has left it vulnerable to short-term fluctuations at high levels.

Liao also noted that as this rebound approaches high levels, the index is entering an area of fulfillment for the rebound, with the biggest advantage for Taiwan stocks currently being the stable trading environment. Statistics show that from the end of March to the end of April, the margin balance decreased by over NT$110 billion, whereas only about NT$14 billion was added during the rebound from the end of April until now, suggesting that even if there is a pullback in the index, it will not be too deep. There are still opportunities for an upward trend before the June Taiwan index futures settlement.

However, Liao warns that moving into the third quarter, the real economy will face pressures from tariffs and orders which, along with currency fluctuations and fundamental corrections, will impact the performance of Taiwan stocks over the next six months. The market has already observed that currency appreciation is affecting profits in the insurance sector, and, in fact, the impact of currency fluctuations on profit margins and earnings in various electronic sectors will also be significant. Nevertheless, Liao remains optimistic about the long-term outlook for the AI industry, as TSMC introduces NVLink Fusion to capture opportunities in the ASIC market, and estimates that this will further boost the development of the AI server industry. With assembly plants' capabilities continuously improving, it is anticipated that the inventory of Blackwell chips will be rapidly depleted by next year.

As the operational challenges increase in the second half of the year, Liao suggests a diversified and balanced approach to stock selection, focusing on leading companies in the N2 supply chain, IC design, edge computing, cloud AI, robotics, low-Earth orbit satellites, essential consumer goods, and financial sectors.