Master the TAIFEX Weighted Index (TAIEX) to Level Up Your Investing Skills! Complete Guide to Reading It

Image Source: unsplash

Do you know what that “Weighted Index” number is that appears in daily news reports about Taiwan stock market gains and losses? This number acts like a thermometer for the Taiwan stock market — a key indicator measuring the overall performance of all listed stocks. The level of market activity can be seen from trading volume.

Market Snapshot Taiwan’s stock market is highly active — for example, a recent single-day turnover once reached NT$523 billion (approximately US$15.9 billion).

Learning to read the Taiwan Weighted Index is like learning to read a map in the vast ocean of investing. It helps beginners find direction and stop feeling lost — it is the first required lesson for every market participant.

Key Takeaways

• The Taiwan Weighted Index (TAIEX) is the thermometer of the Taiwan stock market, measuring the overall performance of all listed companies.
• The index uses “market-cap weighting” — larger companies have greater impact on the index, such as TSMC.
• Rising index = market optimism and possible economic expansion; falling index = market pessimism and possible economic slowdown.
• The standard Weighted Index excludes dividends; the Total Return Index includes reinvested dividends and better reflects long-term total returns.
• Investors can use the Weighted Index to judge market trends, compare individual stock performance, or directly invest in the broader market via index ETFs.

What Is the Taiwan Weighted Index (TAIEX)? Start by Understanding the Calculation Formula

Image Source: unsplash

To truly grasp market movements, we must start with the most fundamental question: how is this constantly changing number actually calculated? Understanding the underlying principles is the first step to reading the market.

Full Name, Origin, and Governing Authority

The “broad market index” we often mention has the official name “Taiwan Stock Exchange Capitalization Weighted Stock Index”, known in English as Taiwan Stock Exchange Capitalization Weighted Stock Index, abbreviated as TAIEX. This key benchmark is compiled and published by the Taiwan Stock Exchange (TWSE) and is the authoritative measure of Taiwan’s overall stock market performance.

What Is Market-Cap Weighting? Understand the Algorithm Using a Class Grade Analogy

The core concept of the Weighted Index is “market-cap weighting”. This may sound complicated, but a simple analogy makes it clear.

Class Grade Point Average Analogy Imagine the entire Taiwan stock market as a class, each listed company as a subject, and the Weighted Index as the class’s “semester GPA”.

However, not every subject carries the same credit weight. Some subjects have heavy credits, like Chinese and Math; others have light credits, like Music and Art. TSMC is like the subject with the heaviest credits — its score has a decisive impact on the overall GPA. Smaller-cap companies are like lightly weighted subjects — even a perfect score has limited impact on the total average.

This “credit weight” is a company’s “market capitalization”. The formula is:

Market Cap = Share Price × Outstanding Shares in Circulation

The larger a company’s market cap, the greater the impact of its price changes on the index. This is why the Taiwan Weighted Index uses market-cap weighting instead of price weighting.

The Power of Heavyweight Stocks: TSMC as an Example

Under market-cap weighting rules, the largest companies by market cap are called “heavyweight stocks” — they are the key drivers of the index. Among them, Taiwan Semiconductor Manufacturing Company (TSMC) is Taiwan’s most important heavyweight stock.

TSMC’s market cap reaches approximately US$1.5 trillion, giving it an extremely high weighting in the Taiwan index. This means TSMC’s price movements directly and significantly affect the broader market.

One Company Rules the Market: TSMC’s Impact on the Index Because of its massive weighting, the market has a saying: “When TSMC rises, the market rises; when TSMC falls, the market falls.” For example, when TSMC’s share price rises by NT$10, it can contribute around 80 points to the Weighted Index. This explains why investors closely watch TSMC’s price every day — it is not just one company’s performance but the market’s overall wind vane.

Where Do Index Points Come From? Understanding the Base Period and Meaning

We often hear the index “breaking 20,000 points” — but where do these points come from? It is actually a relative comparison value.

The Taiwan Stock Exchange set the average share price performance in 1966 as the base period, with an index value of 100 points at that time. This is like drawing the first mark on a height chart for the Taiwan stock market.

Meaning of Index Points The index calculation can be simplified as: Today’s Index Points = (Today’s Total Market Cap of All Listed Companies / 1966 Base Period Total Market Cap) × 100

So when the index reaches 20,000 points, it means the total market cap of all Taiwan listed companies is roughly 200 times larger than in 1966 (20,000 / 100 = 200). This number not only records market gains and losses but also witnesses decades of Taiwan’s economic growth and transformation.

What Do Index Gains and Losses Represent? The Wind Vane for Market Sentiment

After understanding how the index is calculated, the next key question is: what do index rises and falls actually tell us? Simply put, the Weighted Index is a thermometer for collective market sentiment and a wind vane for economic outlook.

Index Rising: Signal of Market Optimism and Economic Expansion

When the index rises, it usually means the market is filled with optimism. This indicates investors broadly expect future economic growth and are willing to pay higher prices for stocks, pushing total market cap higher. Historical data shows that even during periods of political tension, strong economic fundamentals can still support stock market gains.

Historical Bull Market Moments

• 1990s: Despite cross-strait tensions, Taiwan’s strong economic fundamentals drove the market higher, with TAIEX breaking 10,000 points twice in 1997 and 2000.
• Recent Surge: Market optimism can erupt suddenly — for example, TAIEX once recorded a historic single-day gain of 846.24 points, showing strong buying confidence.

Index Falling: Warning of Market Panic or Economic Cooling

Conversely, a falling index signals market panic or economic slowdown. This reflects investor pessimism about the future, leading to widespread selling and shrinking total market cap. The causes of declines are often complex, stemming from global economic turmoil, geopolitical risks, or sector-specific negative news.

For example, global stocks suffered a sharp drop in August 2024, and Taiwan’s index was not spared. That market turmoil resulted from multiple overlapping factors:

• Unexpected Bank of Japan rate hike triggering liquidity concerns.
• Rising investor expectations of a US recession.
• Caution toward overheating AI sector speculation.
• Escalating geopolitical tensions in the Middle East.

Weighted Index vs. Total Return Index: Where Did the Dividends Go?

Investors sometimes notice that their ETF returns seem better than the reported Weighted Index performance. This is because the commonly quoted “Weighted Index” does not include companies’ “dividends.”

💡 Where Dividends Disappear Imagine a company you invest in earns profits and decides to return part of them to shareholders as cash (dividends). After dividend distribution, the company’s value decreases accordingly, and the share price drops (ex-dividend) — naturally pulling down the “Weighted Index.”

To solve this issue, the TWSE also compiles the “Taiwan Stock Exchange Capitalization Weighted Total Return Index” (commonly called the Total Return Index). It assumes all cash dividends received are immediately reinvested in the market. Therefore, the Total Return Index truly reflects total investment returns including dividends.

How to Apply the Taiwan Weighted Index? Three Practical Techniques from Chart Reading to Investing

Image Source: unsplash

After understanding the index composition and meaning, the more important part is learning how to apply it to real investment decisions. The Taiwan Weighted Index is not just a number — it is a practical tool for judging the market, evaluating performance, and even directly participating. Here are three practical techniques for using the index in investing.

Technique 1: Judge Bull/Bear Markets and Grasp Overall Trends

The most direct use of the Weighted Index is to help investors determine the current overall market trend. When the index shows a long-term upward trend, the market is in a “bull market” with optimistic sentiment; conversely, a sustained decline indicates a “bear market” with cautious investors.

For more accurate trend judgment, many investors combine technical indicators. These indicators transform complex price data into intuitive visual signals.

Common Technical Analysis Tools

• Moving Average (MA): A line connecting average prices over a period, used to judge long- or short-term trend direction. For example, when the index stands above the quarterly line (60-day MA), it is often seen as a medium-term bullish trend.
• Relative Strength Index (RSI): Measures momentum and speed of price changes, ranging from 0 to 100. Above 70 may indicate overbought; below 30 may indicate oversold.
• Moving Average Convergence Divergence (MACD): Uses the divergence and convergence of two moving averages of different speeds to identify buy/sell signals and trend changes.

By observing Taiwan Weighted Index changes with these tools, investors gain clearer insight into the market’s big picture and can adjust strategies accordingly.

Technique 2: Compare Individual Stocks to the Market and Evaluate Holdings

When holding individual stocks, investors often ask: “How is my stock really performing?” The Weighted Index serves as an excellent benchmark — it represents the market’s “average performance.”

Individual Stocks vs. Market: A Performance Showdown

Imagine the Weighted Index is up 15% YTD while your stock A is only up 5% — your holding is “underperforming the market.” Conversely, if stock B is up 30%, it is “outperforming the market.”

This simple comparison helps investors assess:

• Stock-picking ability: Can your chosen stocks beat the market average?
• Holding health: Does your stock rise when the market rises? Is it relatively resilient when the market falls?

Regularly comparing your portfolio returns with the index (especially the Total Return Index that includes dividends) is a crucial step for evaluating performance, identifying issues, and optimizing.

Technique 3: Invest Directly in the Market — Understanding Index ETFs

For many investors who don’t want to spend time researching individual stocks or worry about “beating the index but losing on spreads,” there is a simpler way to participate: “invest directly in the broader market.” This is achieved through “index ETFs” (exchange-traded funds).

An index ETF is a fund that tracks the performance of a specific index and trades like a stock. Buying one unit of a broad-market ETF is equivalent to buying a basket of companies representing the Taiwan market.

In Taiwan, the most well-known examples track the “Taiwan 50 Index.” The Taiwan 50 consists of Taiwan’s 50 largest companies by market cap, accounting for nearly 70% of total Taiwan market capitalization.

Representative ETFs: Yuanta Taiwan Top 50 (0050) and Fubon Taiwan 50 (006208)

Both ETFs aim to replicate the Taiwan 50 Index performance as closely as possible. Buying 0050 or 006208 is equivalent to owning proportional shares of Taiwan’s leading companies like TSMC, MediaTek, and Hon Hai. This approach effectively diversifies risk, avoids impact from any single company’s poor performance, and lets investors steadily participate in Taiwan’s long-term economic growth.

When choosing such ETFs, expense ratio and tracking error are key considerations. Expense ratio is the annual management cost paid by investors; tracking error measures how closely the ETF follows its target index.

Overall, investing in the broader market via index ETFs offers investors a low-cost, highly transparent, and effective risk-diversification option — a solid path to long-term asset growth.

The Taiwan Weighted Index is not just a number — it is a practical tool for understanding market dynamics. It reflects Taiwan’s stock market total capitalization of approximately US$2.615 trillion and a forward P/E ratio of about 19.90 — a barometer for market sentiment and economic health. Investors should master its three core aspects:

• Market-cap weighting: Understand how heavyweight stocks drive overall performance.
• Direct investment: Participate in long-term Taiwan index growth via ETFs.

Starting today, investors can actively use this indicator to make more informed decisions.

FAQ

What is the difference between the Weighted Index and the Total Return Index?

The Weighted Index only calculates price changes and excludes dividends. The Total Return Index assumes all dividends are reinvested, better reflecting real total returns including dividends.

How much is “one point” on the index worth in money?

An index point has no fixed monetary value. It is a relative benchmark measuring how much total market cap has grown compared to the base period (1966 = 100 points).

Why does TSMC’s movement affect the market so much?

Because the Taiwan Weighted Index uses “market-cap weighting.” TSMC’s market cap accounts for an extremely high proportion of total Taiwan market cap, so its price swings have the most significant impact on the index.

Why does the market rise sometimes but my stock falls?

The market index represents average performance across the entire market. Index gains are often driven by large-cap heavyweight stocks. If your holdings are not part of the day’s leading sectors, they can decouple from the broader market trend.