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”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Rightmove: Asking prices edge closer to record peak
Asking prices have been driven up by the top-end of the market, Rightmove has found. But how does the situation look in your area?
By Vaishali Varu Published
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?
Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
By Vaishali Varu Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published