“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.
-
10 vinyl records worth up to £10,000 - is one in your collection?News Vinyl is experiencing a resurgence and collectors will pay up to £10,000 for some albums - is it time to dust off your old records?
-
FCA: Banks are still short-changing savers
The latest FCA review finds that while public shaming has encouraged providers into offering better deals on savings, many of those with closed accounts are still being shortchanged.
-
Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
-
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
-
Are corporate bonds a good bet?
Corporate bonds pay a slightly higher yield than governments, but spreads aren’t generous by past standards.
-
SoftBank’s shares slump on quarterly loss
Japanese investment group SoftBank’s technology funds have struggled, not least because of an investment in WeWork.
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
