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Investing.com -- Goldman Sachs analysts highlighted notable dynamics in Taiwan Semiconductor Manufacturing Company’s (TSMC) American Depositary Receipt (ADR) premium, introducing a proprietary TSMC ADR Premium Reversal Index (GSSRTSMR) to track its movements.
The bank stated in a note to clients that since 2023, TSMC’s ADR premium, the price difference between its ADRs traded in the U.S. and ordinary shares listed in Taiwan, has risen sharply, peaking in the high-20% range.
This premium is driven by “ordinary shares being non-convertible into ADRs, alongside differing investor demand across regions,” Goldman Sachs explained.
Other positive drivers are said to include “strong US tech sentiment, USD strength, higher relative liquidity, and divergent fund flows,” while risks come from “valuations, domestic retail demand, and geopolitical risks.”
Goldman Sachs’ analysis found that ADR premium cycles lasting around three weeks typically fluctuate between 10-20%, shifting to 15-25% levels this year.
These cycles are said to be characterized by expansions led by rising ADR prices, while contractions involve falling ADRs but resilient local shares.
To better assess premium risk and opportunities, Goldman Sachs developed a machine learning model that incorporates over 30 data features, including market technicals, macro and fixed income factors, valuation, fund flows, and geopolitical sentiment.
The bank said the newly introduced GSSRTSMR Index measures the probability of premium contraction versus expansion and has a “-50% correlation with future premium changes,” with a threshold of 0.3 offering optimal predictive balance.
Currently, with the ADR premium around 20% and the index reading at -0.4, Goldman Sachs signals “a high likelihood of a short-term rebound (>3pp).”
However, they note that “long-term levels are more influenced by AI-driven sentiment, sustained US investor interest, and concentration risk among regional/Taiwan investors,” factors likely to persist.