Taiwan stocks slumped the most since March last year as concern over further tightening of coronavirus-linked restrictions and a global tech selloff spooked investors.
The Taiwan Stock Exchange Weighted Index finished the session 4.1% lower after slumping as much as 8.6% in morning trading, the worst intraday loss since 1969. Having fallen 9.6% from an April high, the gauge narrowly missed a technical correction. Heavyweight Taiwan Semiconductor Manufacturing Co. and Hon Hai Precision Industry Co. were among the biggest drags, down 1.9% and 4.7%, respectively, on Wednesday.
The selloff marks a sharp turn for the equity index which ranked among Asia’s best performers before it started to retreat at the end of April. Taiwan will strengthen COVID-19 control measures at businesses around Taiwan and those who fail to comply will face fines or closure of businesses, health minister Chen Shih-chung said at briefing in Taipei this afternoon.
The plunge prompted a move by the National Financial Stabilization Fund to hold an extraordinary meeting to decide whether to intervene, according to a local media report citing deputy finance minister Juan Ching-hwa. Juan, when reached by Bloomberg News, said the fund doesn’t plan to hold a meeting to discuss stock market support Wednesday, but its committee isn’t ruling out holding extraordinary meetings to discuss support measures if the market is out of order.
“Investor confidence in Taiex has collapsed now due to concerns over COVID-19 after health minister said it’s possible for Taiwan to escalate alert level for COVID-19,” said Paul Cheng, president of MasterLink Securities Investment Advisory. “And there are some concerns over tech shares especially for the second half outlook due to factors including rising manufacturing costs and lower margins.”
Local investors have turned increasingly wary as health authorities continue to battle the widening coronavirus outbreak that threatens Taiwan’s status as one of the safest places in the world to ride out the pandemic. Taiwan reported a daily record of 16 new COVID-19 cases on Wednesday, according to data compiled by Bloomberg.
Forced selling by leveraged retail investors could have played a role in Wednesday’s swoon as margin debt in Taiwan’s stock market had almost doubled in six months to about 260 billion New Taiwan dollars ($9.3 billion) by the end of April, the highest level since 2011. The total value of stocks traded on the Taiwan Stock Exchange reached NT$758.5 billion Wednesday, a record high.
“For a short-term correction, it is the perfect storm that you have a few events playing out: You’ve had strong interest and strong outperformance in the markets, the first signs of COVID and a bit of global skittishness and that couples with what you’re seeing,” said Randy Abrams, Credit Suisse Head of Taiwan Securities Research, on Bloomberg TV. “It’s a tech-heavy market and you’ve seen that shift from growth toward value.”
Still, some market watchers appeared to remain optimistic about the stock benchmark, citing that the selloff was outsized compared to the relatively small number of new COVID-19 cases.
“Today’s market is overreacting,” said Li Fang Kuo, chairman of President Capital Management. “It is expected that today’s low point is already the bottom of this wave, and there will be a chance to rebound tomorrow. We are still optimistic about the overall Taiwan stock market.”
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