Taiwan Stock Exchange tumbles after chip exuberance and renewed Covid fears

The Taiwan Stock Exchange suffered a brutal sell-off as worries about global inflation, speculation on semiconductor firms, and fears about rising local Covid-19 cases.

“There are bad market days, then there is the 8%-plus free fall that gripped Taiwan stocks”, says Barbara Kollmeyer in Barron’s. Taiwanese shares suffered a brutal sell-off on 12 May as worries about global inflation and overheated speculation on semiconductor firms collided with fears about rising local Covid-19 cases. The market later recouped some of its losses, but the early-day plunge was the worst that the tech-heavy Taiex index has suffered since 2000 when the dotcom bubble imploded.

Betting it all on chips 

Investors had been feeling cheerful, say Lauly Li and Cheng Ting-Fang in Nikkei Asia. The global semiconductor shortage has driven surging interest in Taiwanese chip makers. Industry leader Taiwan Semiconductor Manufacturing Company (TSMC) makes up more than 30% of the local stockmarket, while smartphone chip designer MediaTek is the third-biggest firm. Taiwan’s highly successful campaign against Covid-19 added to the optimism. Local retail investors have been diving in; the island has 11.24 million share-trading accounts, equivalent to almost half of the local population. Their exuberance left the market richly priced: price-to-book value has risen from 1.64 to 2.4 over the past 12 months.

This was a “classic story of exuberance and leverage”, adds Mike Bird in The Wall Street Journal. The Taiex had soared 48% over the past year and increasing numbers of investors have been borrowing to invest. When share prices fell, it triggered margin calls, forcing investors to sell even more in order to raise cash. Such leveraged equity purchases always heighten volatility and they are on the rise elsewhere, particularly in the US, India and Korea. Taiwan – now 8% off its April highs – won’t be the last market to find that soaring margin debt carries “the risk of messy sell-offs”.

Covid-19 concerns 

The spike in Covid-19 cases prompted Taiwanese authorities to impose their strictest restrictions since the pandemic began, although these stop short of a full lockdown. Other parts of Asia are also suffering from renewed outbreaks. Singapore announced tighter measures last Friday after finding several clusters. The Straits Times index responded by falling 2.2%, its worst daily performance in 11 months, says Reuters.

The situation in Southeast Asia is concerning, says Amy Gunia in Time. The region fared “relatively well” last year, but cases are now rising and vaccinations rates remain low. In Thailand, where infections have risen 18-fold since December, fewer than 4% of people have received a first jab. In Vietnam, it’s less than 2%. This wave could spread “like a bush fire across the region”, says Abhishek Rimal of the International Federation of Red Cross and Red Crescent Societies.

Recommended

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The MoneyWeek Podcast: nuggets of positivity in an extended bear market
Investment strategy

The MoneyWeek Podcast: nuggets of positivity in an extended bear market

Merryn and John talk about he need for higher wages and lower house prices, and why the fact that this is the least dramatic bear market they’ve ever …
1 Jul 2022
Here are the best savings accounts on the market now
Savings

Here are the best savings accounts on the market now

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
Gold has been incredibly boring to own – but that’s no bad thing right now
Gold

Gold has been incredibly boring to own – but that’s no bad thing right now

Stocks, bonds and cryptocurrencies have all seen big falls this year. But gold remains at its one-year average. It may be dull, but it’s doing what it…
29 Jun 2022