Bloomberg information reported that stock market investors may not be afraid of heaven and earth, but only afraid of margin call orders all arrows, 12 this fear in Taiwan’s stock market turned into panic, bringing another blow to the head of the global stock market.
The Taipei stock market was initially calm in early trading on the 12th, but before noon, the Taiwan Stock Exchange’s weighted stock price index plunged 8.55%, the largest single-day decline in the 54 years since the index was launched.
Investors had many reasons to kill their holdings, such as the latest information showing that the island’s new coronary pneumonia (CCP virus) epidemic has become more severe, and the deepening decline in global technology stocks has also reduced the attractiveness of Taiwan stocks. But this wave of decline came sharply and violently, showing that there are greater factors behind the promotion of decline.
Bloomberg pointed out that for several months, people around the world have long warned about the long market, the use of leverage has increased greatly, has made the stock market risk higher, from Archegos Capital Management in March due to the failure of leverage operations tragically cut off, is a major warning. However, the stock market continues to rise, and the MSCI AC World Index closed at a new record on Friday. In the U.S., according to the latest available data, financing balances (margin debt) exceeded $822 billion at the end of March, a 72% jump year-to-date.
The same is happening in Taiwan. Investors’ confidence is strong and the amount of leveraged operations is getting bigger and bigger, and the result? The financing balance has surged 46% this year, rising to NT$274 billion (US$9.8 billion) two weeks ago, the highest level since 2011. In contrast, the Taiwan stock-weighted index rose only 19% in the same period, showing that the public borrowed money to play stocks far faster than the speed of Taiwan stocks.
The report points out that Taiwan stock investors have little reason to worry about losing money on stocks. Taiwan’s economy is one of the big winners in the U.S.-China standoff, with chip manufacturing booming in particular, reflecting Washington’s ambition to crack down on Beijing’s efforts to foster the domestic semiconductor industry, as well as the shortage of chip supplies due to the new crown pneumonia epidemic. As of April, Taiwan’s stock-weighted index has risen for seven months in a row.
However, this euphoric intoxication in Taiwan’s stock market began to dissipate this week. The threat of inflation in the U.S. pulled the alarm, sinking the U.S. technology stock-based Nasdaq Composite Index, with technology stocks around the world following the decline, and the Taiwan Stock Weighted Index has plunged 3.8% on the 11th, with the financing balance level dropping by NTD 12.6 billion, the largest drop since October 2018. As a result, traders are under pressure from brokerage firms to call their margins to make up for the losses in their securities accounts.
The report pointed out that the unprecedented fall of Taiwan stocks on the 12th may be triggered by the expansion of “deleveraging”. (However, this comparison is biased, as Taiwan began to relax daily limits on individual stocks in 2015)
Paul Cheng, president of MasterLink Rubus Investment Advisors, said, “Margin trading has helped boost Taiwan stocks over the past few months, and if they face margin calls, it could add fuel to the fire of the downtrend.”
With retail investors accounting for about 60 percent of Taiwan stocks’ turnover, a sense of fear of a possible further decline pervades the market. The derivative commodity market also exploded in huge volume on the 12th: options tracking the Taiwan stock-weighted index changed hands over 1.75 million mouths that day, the third largest volume in 2016.
KGI Securities trader Kevin Lee, who has been in the industry for 10 years, said he saw clients panicking and “sell orders coming in” and “investors were going crazy. A lot of news came out during the trading session, I don’t know if it’s true or not.”
Taiwan stocks closed down to 4.1% on the 12th, but the damage that hit investors’ confidence hard has been done.