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In the elusive stock market, there’s a group of people who hold the key to stock price movements. When they start buying stocks, prices may rise; and when they start selling, prices may fall. These buying and selling trends often serve as the basis for studying the future direction of the stock market for us regular investors, with the hope of buying low and selling high to make a profit from the stock market. This group of people is commonly referred to as the “three major institutional investors.” The analysis method that predicts stock prices based on the movements of these institutional investors is called chip analysis. Today’s article aims to help you understand who these three major institutional investors are and what impact they might have on Taiwan’s stock market.
Introducing Three Major Institutional Investors in Taiwan
TEJ Pro Data Query Demonstration
✨Three Major Institutional Investors✨
In the stock market, institutional investors refer to companies, banks, profit-making organizations, and the like. These entities possess substantial funds and wield significant influence over the stock market. The term “Three Major Institutional Investors” specifically refers to foreign institutional investors, investment funds, and dealers. Compared to individual retail investors, these institutions have large and concentrated funds, holding a considerable portion of the market in stock trading. Let’s delve into what foreign investors, investment funds, and dealers are.
Foreign Institutional Investors: Long-term Investments
Foreign institutional investors refer to overseas investment institutions or funds, including Goldman Sachs, JPMorgan Chase, Citigroup Global, etc. They can be further divided into foreign investors, mainland investors, and foreign proprietary traders. Regardless of trading volume and capital allocation, they are the most significant among the current three major institutional investors. They typically operate in medium to large-cap stocks, focusing on long-term positioning. Their investment decisions are based on fundamental analysis and industry structure assessment to evaluate the future stock prices of various companies. Due to their substantial funds, it may take several days for foreign investors to buy or sell the target quantity, thus their holding period is relatively longer. Additionally, governments may impose restrictions on their investment amounts, and both entry and exit require government approval.
Investment Funds : Short to Medium-term Investments
Investment funds refer to domestic investment funds, including Yuanta Investment Fund, Fubon Investment Fund, KGI Investment Fund, etc. These companies issue funds for the public to purchase and pool all the funds. They invest in the stock market through professional fund managers, while also charging investors commission fees and management fees. Compared to foreign institutional investors, investment funds have lower funding levels and focus more on short to medium-term positioning. They typically operate in small to medium-sized stocks based on thematic and fundamental factors, with holding periods ranging from several days to several months. The prices of these types of stocks can easily surge within a short period due to trading volume.
Let’s briefly discuss the commonly heard term “quarter-end window dressing.” The performance of funds raised by investment funds is calculated at the end of each quarter. To make their performance look good, they may boost or liquidate holdings at the end of each quarter. However, it’s important to note that regulations limit the proportion of individual stocks to no more than 10% of their own fund’s net asset value. Therefore, investment funds typically hold a total stock holding ratio of less than 15% for a particular stock. If investors notice that the stock holding ratio is approaching 15%, it’s a sign that the time for the investment fund to sell is approaching, and the stock price may decline accordingly. Investors need to pay extra attention to this when investing.
Dealers: Short-term Investments
Dealers refer to the investment departments of securities firms that use their own capital to invest in the stock market. They do not accept client commissions and cannot engage in margin trading (financing). Examples include Yuanta Securities, Capital Securities, and IBF Securities. Compared to foreign institutional investors and investment funds, dealers have lower funding levels and shorter operating cycles. They typically prefer stocks with more active trading characteristics, such as hot stocks or thematic stocks. These types of stocks often have smaller market capitalization and greater volatility, increasing the likelihood of quick profits.
✨TEJ Pro Data Query✨
The biggest advantage of institutional investors lies in their control over funds, information, and research resources, giving them a better chance than most retail investors to understand a company’s operational status early on and decide whether to invest. The results of their decisions are reflected in the daily trading information. So how can we determine the trends of foreign institutional investors, investment funds, and dealers from the daily disclosed chip information? You can find the daily trading information of the three major institutional investors published by the Taiwan Stock Exchange in our TEJ Pro database, such as “Transaction Amount Statistics,” “Daily Buy/Sell Report,” “Summary of Buy/Sell Net,” etc. However, the data released by the Taiwan Stock Exchange is sorted by the number of shares traded or only shows the overall buy/sell net amount, which is insufficient for analysis. We at TEJ provide some value-added services, such as market value of net buys/sells, net shares traded, shareholdings, and ownership percentages, all of which are derived and calculated by us. We will detail these algorithms in the next issue. Here, let’s take a look at how to operate the TEJ Pro database, using TSMC (2330) on August 3, 2021, as an example.
1️⃣ Click on the “Qfii/Dealer/Invest.Buy/Sell” in the “TEJ TOP DB” from TEJ PRO
2️⃣ Enter the code “2330” for TSMC in the dropdown menu above.
3️⃣ Click on the “field” button to select all fields.
4️⃣ Enter “20210803” in the date section at the top right corner to get the particular data
5️⃣ obtain the trading information of the three major institutional investors for TSMC ( 2330 ) on August 3rd.
Although we retail investors may not have the same level of capital and information as the three major institutional investors, we can still observe their buying and selling behaviors through chip analysis data. By doing so, we can conduct further analysis and make informed decisions. Just like them, we can buy low and sell high in the stock market, steadily accumulating wealth and making stock investment a stable source of profit. Today, we introduced the basic knowledge of the three major institutional investors. In the next issue, we will explain how TEJ calculates the holdings of the three major institutional investors and provide more in-depth information. If you’re interested, our E-Journal also offers other related articles, which you can find in the link below.
