TAIEX

The Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) is the principal broad-market stock market index of the Taiwan Stock Exchange (TWSE). It measures the aggregate performance of stocks listed on the TWSE and is compiled and maintained under rules established by the exchange. The index is widely used as a benchmark for the Taiwan securities market.

TAIEX is a market capitalization-weighted index, meaning that companies with larger market values have a greater influence on the index.

History

TAIEX is the first self-compiled stock index of the Taiwan Stock Exchange. Its base is the annual average of 1966, with a base value of 100 points. The index was launched in November 1970.

The historical base can be represented as:

$\mathrm{1966}\mathrm{A}\mathrm{n}\mathrm{n}\mathrm{u}\mathrm{a}\mathrm{l}\mathrm{A}\mathrm{v}\mathrm{e}\mathrm{r}\mathrm{a}\mathrm{g}\mathrm{e}\to \mathrm{B}\mathrm{a}\mathrm{s}\mathrm{e}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{100}\to \mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}$

TAIEX subsequently became the principal broad-market benchmark for Taiwan's listed equity market.

Composition

The TAIEX constituent universe consists of common stocks listed on the Taiwan Stock Exchange, subject to the eligibility and maintenance provisions of the TAIEX methodology.

Newly listed companies are generally incorporated into the index after one full calendar month from listing. Certain corporate reorganizations, transfers from the Taipei Exchange Mainboard and other specified circumstances are subject to different inclusion rules.

A simplified representation is:

$\mathrm{T}\mathrm{W}\mathrm{S}\mathrm{E}\mathrm{L}\mathrm{i}\mathrm{s}\mathrm{t}\mathrm{e}\mathrm{d}\mathrm{C}\mathrm{o}\mathrm{m}\mathrm{m}\mathrm{o}\mathrm{n}\mathrm{S}\mathrm{t}\mathrm{o}\mathrm{c}\mathrm{k}\mathrm{s}\to \mathrm{E}\mathrm{l}\mathrm{i}\mathrm{g}\mathrm{i}\mathrm{b}\mathrm{l}\mathrm{e}\mathrm{C}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{t}\mathrm{i}\mathrm{t}\mathrm{u}\mathrm{e}\mathrm{n}\mathrm{t}\mathrm{s}\to \mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}$

Calculation

TAIEX is calculated using the aggregate market value of its constituent stocks relative to an adjusted base value.

The methodology specifies the following general formula:

$\mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}=\frac{\mathrm{A}\mathrm{g}\mathrm{g}\mathrm{r}\mathrm{e}\mathrm{g}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}}{\mathrm{A}\mathrm{d}\mathrm{j}\mathrm{u}\mathrm{s}\mathrm{t}\mathrm{e}\mathrm{d}\mathrm{B}\mathrm{a}\mathrm{s}\mathrm{e}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}}\times 100$

The aggregate market value is calculated from the trading price and the number of issued shares of each constituent stock.

For an individual constituent, a simplified representation of market value is:

$\mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}=\mathrm{S}\mathrm{h}\mathrm{a}\mathrm{r}\mathrm{e}\mathrm{P}\mathrm{r}\mathrm{i}\mathrm{c}\mathrm{e}\times \mathrm{I}\mathrm{s}\mathrm{s}\mathrm{u}\mathrm{e}\mathrm{d}\mathrm{S}\mathrm{h}\mathrm{a}\mathrm{r}\mathrm{e}\mathrm{s}$

Consequently, movements in large-capitalization companies can have a greater effect on TAIEX than movements of smaller companies.

Calculation frequency

The TWSE calculates and disseminates the TAIEX Price Index during trading hours at five-second intervals using the latest available transaction prices of constituent stocks. An end-of-day index is calculated after the market closes.

A simplified calculation process is:

$\mathrm{C}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{t}\mathrm{i}\mathrm{t}\mathrm{u}\mathrm{e}\mathrm{n}\mathrm{t}\mathrm{P}\mathrm{r}\mathrm{i}\mathrm{c}\mathrm{e}\mathrm{s}\to \mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{s}\to \mathrm{A}\mathrm{g}\mathrm{g}\mathrm{r}\mathrm{e}\mathrm{g}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\to \mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}$

Price index and total return index

TAIEX is maintained in both a Price Index and a Total Return Index.

The Price Index reflects movements in constituent stock prices. The Total Return Index incorporates the effect of cash dividends and is designed to reflect returns including the reinvestment of cash dividends.

The distinction can be represented as:

$\mathrm{P}\mathrm{r}\mathrm{i}\mathrm{c}\mathrm{e}\mathrm{I}\mathrm{n}\mathrm{d}\mathrm{e}\mathrm{x}\to \mathrm{P}\mathrm{r}\mathrm{i}\mathrm{c}\mathrm{e}\mathrm{C}\mathrm{h}\mathrm{a}\mathrm{n}\mathrm{g}\mathrm{e}\mathrm{s}$

$\mathrm{T}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{R}\mathrm{e}\mathrm{t}\mathrm{u}\mathrm{r}\mathrm{n}\mathrm{I}\mathrm{n}\mathrm{d}\mathrm{e}\mathrm{x}\to \mathrm{P}\mathrm{r}\mathrm{i}\mathrm{c}\mathrm{e}\mathrm{C}\mathrm{h}\mathrm{a}\mathrm{n}\mathrm{g}\mathrm{e}\mathrm{s}+\mathrm{C}\mathrm{a}\mathrm{s}\mathrm{h}\mathrm{D}\mathrm{i}\mathrm{v}\mathrm{i}\mathrm{d}\mathrm{e}\mathrm{n}\mathrm{d}\mathrm{s}$

Index maintenance

The TAIEX methodology provides for adjustments to the index base when changes in its constituent stocks could otherwise interrupt index continuity.

Such events include:

• additions or deletions of constituent stocks;
• cash capital increases;
• certain stock distributions;
• capital reductions;
• changes resulting from corporate restructuring; and
• other specified corporate actions.

A simplified representation is:

$\mathrm{C}\mathrm{o}\mathrm{r}\mathrm{p}\mathrm{o}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{A}\mathrm{c}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}\to \mathrm{B}\mathrm{a}\mathrm{s}\mathrm{e}\mathrm{A}\mathrm{d}\mathrm{j}\mathrm{u}\mathrm{s}\mathrm{t}\mathrm{m}\mathrm{e}\mathrm{n}\mathrm{t}\to \mathrm{I}\mathrm{n}\mathrm{d}\mathrm{e}\mathrm{x}\mathrm{C}\mathrm{o}\mathrm{n}\mathrm{t}\mathrm{i}\mathrm{n}\mathrm{u}\mathrm{i}\mathrm{t}\mathrm{y}$

The purpose of these adjustments is to prevent changes arising from specified corporate actions from being interpreted as ordinary changes in aggregate market value.

Sector exposure

Because TAIEX is capitalization weighted, its performance is influenced disproportionately by companies and sectors with large market capitalizations.

Taiwan has a large listed technology and semiconductor industry, making developments in these sectors important drivers of the index. However, TAIEX also includes companies from financial, industrial, transportation, consumer and other sectors.

A simplified relationship is:

$\mathrm{L}\mathrm{a}\mathrm{r}\mathrm{g}\mathrm{e}\mathrm{M}\mathrm{a}\mathrm{r}\mathrm{k}\mathrm{e}\mathrm{t}\mathrm{C}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{i}\mathrm{z}\mathrm{a}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}\to \mathrm{G}\mathrm{r}\mathrm{e}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{r}\mathrm{I}\mathrm{n}\mathrm{d}\mathrm{e}\mathrm{x}\mathrm{W}\mathrm{e}\mathrm{i}\mathrm{g}\mathrm{h}\mathrm{t}\to \mathrm{G}\mathrm{r}\mathrm{e}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{r}\mathrm{I}\mathrm{n}\mathrm{f}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{n}\mathrm{c}\mathrm{e}\mathrm{o}\mathrm{n}\mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}$

Therefore, the movement of TAIEX should not be interpreted as an equal-weighted representation of every listed company.

TAIEX and the semiconductor industry

Taiwan is a major center of global semiconductor manufacturing, and large semiconductor and technology companies listed on the TWSE can have a substantial influence on TAIEX.

Changes in global semiconductor demand, artificial intelligence investment, electronics exports, technology spending, semiconductor prices and supply-chain conditions can therefore affect the index.

A simplified transmission mechanism is:

$\mathrm{G}\mathrm{l}\mathrm{o}\mathrm{b}\mathrm{a}\mathrm{l}\mathrm{T}\mathrm{e}\mathrm{c}\mathrm{h}\mathrm{n}\mathrm{o}\mathrm{l}\mathrm{o}\mathrm{g}\mathrm{y}\mathrm{D}\mathrm{e}\mathrm{m}\mathrm{a}\mathrm{n}\mathrm{d}\to \mathrm{T}\mathrm{a}\mathrm{i}\mathrm{w}\mathrm{a}\mathrm{n}\mathrm{T}\mathrm{e}\mathrm{c}\mathrm{h}\mathrm{n}\mathrm{o}\mathrm{l}\mathrm{o}\mathrm{g}\mathrm{y}\mathrm{C}\mathrm{o}\mathrm{m}\mathrm{p}\mathrm{a}\mathrm{n}\mathrm{i}\mathrm{e}\mathrm{s}\to \mathrm{C}\mathrm{o}\mathrm{r}\mathrm{p}\mathrm{o}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}\mathrm{E}\mathrm{a}\mathrm{r}\mathrm{n}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{s}\to \mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}$

The relationship is not mechanical, since stock prices also reflect expectations concerning future earnings, interest rates, valuations, exchange rates and global capital flows.

TAIEX and the Taiwanese economy

TAIEX is an equity-market indicator rather than a direct measure of economic output.

The distinction can be expressed as:

$\mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}\ne \mathrm{G}\mathrm{r}\mathrm{o}\mathrm{s}\mathrm{s}\mathrm{D}\mathrm{o}\mathrm{m}\mathrm{e}\mathrm{s}\mathrm{t}\mathrm{i}\mathrm{c}\mathrm{P}\mathrm{r}\mathrm{o}\mathrm{d}\mathrm{u}\mathrm{c}\mathrm{t}$

Gross domestic product (GDP) measures economic production, whereas TAIEX measures the market performance of listed equities.

Consequently, changes in TAIEX do not necessarily correspond proportionally to changes in Taiwan's current economic output.

International investors

TAIEX is used as a benchmark for evaluating the performance of Taiwan's listed equity market.

For investors whose reference currency is different from the New Taiwan dollar, the return on an investment linked to Taiwan equities can differ from the local-currency performance of TAIEX because of exchange-rate movements.

A simplified representation is:

$\mathrm{F}\mathrm{o}\mathrm{r}\mathrm{e}\mathrm{i}\mathrm{g}\mathrm{n}\mathrm{I}\mathrm{n}\mathrm{v}\mathrm{e}\mathrm{s}\mathrm{t}\mathrm{o}\mathrm{r}\mathrm{R}\mathrm{e}\mathrm{t}\mathrm{u}\mathrm{r}\mathrm{n}=\mathrm{L}\mathrm{o}\mathrm{c}\mathrm{a}\mathrm{l}\mathrm{E}\mathrm{q}\mathrm{u}\mathrm{i}\mathrm{t}\mathrm{y}\mathrm{R}\mathrm{e}\mathrm{t}\mathrm{u}\mathrm{r}\mathrm{n}+\mathrm{C}\mathrm{u}\mathrm{r}\mathrm{r}\mathrm{e}\mathrm{n}\mathrm{c}\mathrm{y}\mathrm{E}\mathrm{f}\mathrm{f}\mathrm{e}\mathrm{c}\mathrm{t}$

The actual return depends on the investment vehicle, dividends, fees, taxes and currency exposure.

Related indices

The Taiwan Stock Exchange maintains a range of indices associated with TAIEX and its constituent market. These include sector-exclusion indices and industrial sub-indices.

Examples include:

• TAIEX Non-Finance Sub-Index
• TAIEX Non-Electronics Sub-Index
• TAIEX Non-Finance Non-Electronics Sub-Index
• TAIEX industrial sub-indices

These indices allow different segments of the Taiwan equity market to be examined separately.

Limitations

TAIEX has several limitations as a measure of investment performance or economic conditions.

• Its capitalization-weighted structure gives larger companies greater influence.
• The Price Index does not incorporate reinvested cash dividends.
• The index represents stocks listed on the TWSE rather than the entire Taiwanese economy.
• Stock prices incorporate expectations about future earnings and economic conditions rather than only current economic performance.
• Foreign investors are exposed to exchange-rate movements when measuring returns in another currency.
• TAIEX performance does not necessarily correspond to changes in GDP.

A simplified distinction is:

$\mathrm{T}\mathrm{A}\mathrm{I}\mathrm{E}\mathrm{X}\mathrm{P}\mathrm{e}\mathrm{r}\mathrm{f}\mathrm{o}\mathrm{r}\mathrm{m}\mathrm{a}\mathrm{n}\mathrm{c}\mathrm{e}\ne \mathrm{E}\mathrm{c}\mathrm{o}\mathrm{n}\mathrm{o}\mathrm{m}\mathrm{i}\mathrm{c}\mathrm{G}\mathrm{r}\mathrm{o}\mathrm{w}\mathrm{t}\mathrm{h}\ne \mathrm{I}\mathrm{n}\mathrm{v}\mathrm{e}\mathrm{s}\mathrm{t}\mathrm{o}\mathrm{r}\mathrm{R}\mathrm{e}\mathrm{t}\mathrm{u}\mathrm{r}\mathrm{n}$

The Total Return Index may be more appropriate than the Price Index when evaluating equity-market performance including cash dividends.

See also

• Taiwan Stock Exchange
• Taiwan
• Stock market index
• Market capitalization
• Capitalization-weighted index
• Semiconductor industry in Taiwan
• FTSE TWSE Taiwan 50 Index
• MSCI Taiwan Index
• New Taiwan dollar