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(Bloomberg) -- The popular Taiwan Semiconductor Manufacturing Co. arbitrage trade may soon see a change in dynamics that could affect the trading of the US listing versus the local one. And for anyone who wants to monetize the elevated premium, Goldman Sachs Group Inc. highlights potential trades.
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A note from the bank’s sales desk published Friday said demand for TSMC’s Taipei-traded stock could rise as Taiwan’s regulator is considering an amendment to local exchange-traded funds’ ownership. The changes, which could come in the first half of this year, could push up the current 30% single-stock weight limit and affect allocations to the shares. As a result, the spread between the two listings could narrow.
“This presents an interesting opportunity for investors to monetize the premium in the ADR,” the note said. Existing holders of TSMC’s American depositary receipts could do so by switching into the local stock. Those interested in capturing the narrowing spread could buy the local shares while shorting the US listing, Goldman Sachs said.
Also read: TSMC’s 25% Arbitrage Trade Is Too Dangerous for Hedge Funds
The enthusiasm over artificial intelligence in the US since the rise of ChatGPT has pushed the premium of TSMC’s ADRs over the local listing to its highest average this quarter since 2002. As of Friday, the US shares’ premium was near 19%, compared with around 10% for the five-year average.
Risks related to Donald Trump’s tariff policy and a potential partnership with Intel Corp. could lead to more volatility and profit taking on the ADRs, Goldman Sachs also said. The US-traded shares have gained almost 140% since the release of ChatGPT, more than the 123% increase in the local listing through Friday and far beating the 82% rise in a global gauge of semiconductors.
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