Taiwan entered 2026 with strong growth and low inflation, supported by global demand for AI-related exports and easing US tariff pressures. The outlook for 2Q 2026 is now under pressure from higher energy prices linked to tensions in the Middle East and from softer export momentum.
The report links the US–Israel–Iran conflict to disruption in global energy markets and supply chains. It says leading indicators point to rising inflation and moderating exports in 2Q.
Key Leading Indicators
In March, PMI data showed a sharp rise in input costs, reaching levels last seen during the Russia–Ukraine war in 2022. The same data also showed a modest fall in export orders.
The inflation forecast (CPI) was revised to 1.9%, while the GDP growth forecast was kept at 7.0%.
We see the current “Goldilocks” environment for Taiwan as highly fragile, presenting clear opportunities in the weeks ahead. The primary catalyst is the energy shock stemming from Middle East tensions, which is now the main driver of market risk. With Brent crude recently breaking past $110 a barrel, we are looking at trading strategies that benefit from sustained high energy prices and rising inflation.
This situation suggests going long on oil futures or buying call options on energy-related assets to capitalize on further price increases. The March PMI data, showing input costs at levels not seen since the 2022 conflict in Ukraine, confirms this inflationary pressure is already filtering through the economy. This makes inflation-linked derivatives attractive as a way to hedge against or profit from the rising consumer price index.
Equity Volatility And Currency Pressure
On the equity side, the threat to exports puts the recent AI-driven rally at risk. While tech demand carried the TAIEX index to record highs through late 2025 and early 2026, we are now advising caution. We believe purchasing put options on the TAIEX or on key semiconductor stocks is a prudent way to hedge against a potential downturn as export orders soften.
The clash between strong AI fundamentals and new macroeconomic headwinds is increasing market uncertainty. Implied volatility on TAIEX options has already ticked up by 5% over the last two weeks, signaling that larger price swings are expected. This environment is ideal for volatility-based strategies, such as straddles, which can profit from a significant market move in either direction.
Finally, we anticipate the New Taiwan Dollar will face downward pressure. Slower export growth combined with a global flight to the safety of the US dollar could weaken the currency from its current levels. We have observed the TWD slide 1.5% against the dollar this month, and we expect this trend to continue, making long positions in USD/TWD futures a compelling trade.
