US Investors Pay Biggest Premium for TSMC Shares in Two Months

US investors have been paying a significant premium for Taiwan Semiconductor Manufacturing Company (TSMC) shares, with the gap between the US and global prices reaching its highest level in two months. This trend reflects the growing demand for semiconductors and the strategic importance of TSMC in the global supply chain. However, it is essential to consider the broader market sentiment towards TSMC in other major global markets.

Geopolitical tensions, particularly US-China relations, significantly influence global investor sentiment towards TSMC. As the world's largest contract chipmaker, TSMC is a critical player in the global semiconductor industry, with a significant portion of its revenue coming from US-based clients like Apple and Nvidia. The ongoing US-China trade war and technological rivalry have created uncertainty, driving investors to seek refuge in TSMC shares. The company's strong financial performance and dominant market position have also contributed to its appeal.

Technological advancements and market trends in the semiconductor industry also play a role in driving the premium for TSMC shares. The global semiconductor shortage has driven demand for TSMC's advanced manufacturing processes. Additionally, US investors may be attracted to TSMC's exposure to the growing demand for chips in electric vehicles, a sector where Chinese manufacturers are increasingly influential. The bull market, driven by strong corporate earnings and technological advancements, may also be encouraging investors to seek out high-performing tech stocks like TSMC.



The increased concentration of market portfolios in large-cap stocks, such as TSMC, has also impacted the premium for these shares among US investors. According to a study by Avantis, concentration levels for the 10 largest stocks in several common indexes are now at historic highs, with the Russell 1000 Growth and S&P 500 indexes significantly higher than before the dot-com bubble burst. This increased concentration reduces the benefits of diversification and increases exposure to idiosyncratic risks. A study by Emery and Koëter found that higher stock market concentration increases the expected returns of small firms, making it more difficult for them to raise equity financing and increasing their expected returns. This phenomenon may contribute to the higher premium for TSMC shares, as investors seek exposure to successful, large-cap firms.

In conclusion, the premium for TSMC shares among US investors can be attributed to several factors, including geopolitical tensions, technological advancements, market trends, and increased concentration of market portfolios. However, it is essential to consider the broader market sentiment towards TSMC in other major global markets to gain a more comprehensive understanding of the trend in US investor sentiment towards the company. As the global demand for semiconductors continues to grow, TSMC's strategic importance in the global supply chain is likely to remain a significant driver of investor interest in the company's shares.