NextFin News - Taiwan’s financial regulator is dismantling a decades-old investment ceiling that has long forced active fund managers to underweight the island’s most dominant company, Taiwan Semiconductor Manufacturing Co. (TSMC). The Financial Supervisory Commission (FSC) announced on Thursday that it will raise the single-stock investment limit for active mutual funds from 30% to 40% of a fund’s net asset value, a move designed to align domestic portfolios with the reality of a market where one firm now accounts for more than a third of total capitalization.
The policy shift follows a similar relaxation for exchange-traded funds (ETFs) and reflects the growing "TSMC-dependency" of the local bourse. As of April 23, 2026, TSMC shares were trading at NT$2,095.00 in Taipei, up 2.2% on the day, as investors priced in the potential for a fresh wave of institutional buying. For years, active managers in Taiwan have complained that the 30% cap made it nearly impossible to outperform benchmarks, as TSMC’s weighting in the TAIEX often exceeded 35%, leaving funds structurally disadvantaged when the chipmaker rallied.
Gao Jingping, deputy director of the FSC’s Securities and Futures Bureau, noted during a press briefing that the adjustment aims to provide "greater flexibility" for professional managers to reflect market conditions. The regulator’s decision is a pragmatic concession to the lopsided nature of Taiwan’s equity market, where the semiconductor giant’s success has outpaced the growth of the broader index. By allowing active funds to hold up to 40% in a single name, the FSC is effectively permitting domestic managers to "chase" the market leader more aggressively.
The move is not without its critics. Some analysts argue that increasing the cap further concentrates systemic risk within a single industry and a single company. While the relaxation helps solve the "tracking error" problem for managers, it also leaves the domestic mutual fund industry more vulnerable to a downturn in the global semiconductor cycle. If TSMC were to face a significant correction, the impact on local retail investors—who are heavily allocated to these active funds—would be amplified under the new 40% threshold.
Beyond the immediate portfolio adjustments, the FSC’s decision is part of a broader effort to modernize Taiwan’s capital markets. Earlier this week, the regulator also moved to allow foreign investors to receive dividends in U.S. dollars, a policy dubbed the "TSMC Clause" because of the massive dividend outflows generated by the company. Together, these measures signal a regulatory environment that is increasingly willing to bend traditional diversification rules to accommodate the unique scale of its national champion.
Market participants expect the transition to the 40% limit to trigger a rebalancing phase over the coming weeks. While the FSC has not mandated an immediate shift, the competitive pressure to match benchmark performance will likely drive most large-cap active funds toward the new ceiling. This institutional demand provides a technical floor for TSMC’s stock price, even as the company navigates a complex global landscape of rising capital expenditures and geopolitical pressure to diversify its manufacturing footprint into the United States and Europe.
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