The TAIEX dropped 1,982.04 points, or 11.79 percent, last month — the biggest loss in a single month since September 1990 — as stubbornly high inflation worldwide and major central banks’ looming interest rate hikes have caused global fund outflows from emerging markets and sent others into a tailspin amid fears of a global recession. While signs of US stocks tumbling into bear market territory last month sent ripples around the globe, including in Taiwan, fears of weakening external demand added to negative sentiment toward the local market due to expectations of more macro headwinds for the nation’s export-reliant economy.
So far this year, the TAIEX has dropped 22 percent from a January high of 18,619 points, meeting Wall Street’s definition of a bear market and meaning 18,619 is likely the highest the main board will go this year. Some experts have said that overseas funds have sold more shares in tech-savvy markets such as Taiwan, South Korea and India than those in other emerging markets in Asia due to fears of a global recession. Unfortunately, the downward trend is likely to continue as long as market sentiment remains cautious in light of aggressive moves by global central banks led by the US Federal Reserve to fight inflation.
The TAIEX’s significant setback also reflects investors’ cautious outlook regarding the semiconductor sector in particular, as the performance of the main board is closely linked to the nation’s most crucial tech sector. No wonder that in recent sessions the sell-offs in shares of Taiwan Semiconductor Manufacturing Co, which accounts for more than one-quarter of the TAIEX’s weighting, easily pushed the benchmark index to 17,000, 16,000 and then 15,000 points.
The container shipping sector’s decline has also added to the TAIEX’s losses. US President Joe Biden last month signed into law the Ocean Shipping Reform Act as part of efforts to fight inflation. That, coupled with signs that container trade growth is softening due to a slowing global economy and reduced congestion at sea ports worldwide because of eased COVID-19 restrictions, has spurred fears among investors that surging freight fees and the sector’s explosive growth last year could be short-lived.
The PC sector has performed brilliantly since the outbreak of COVID-19 due to work-from-home and remote-learning trends. However, after coming off two years of double-digit percentage growth, PC brands and contract makers have recently revised downward their sales outlook for the second half of this year, as the market’s visibility appears to be low over the upcoming months, while the issue of semiconductor and key component shortages is being resolved gradually. The PC sector’s decline has affected supply chains, including the flat-panel display, power IC and PC hardware segments.
At a time when funds are flowing out of Taiwan and the stock market is retreating, investors have had an opportunity to examine problems related to global current trade development and re-examine their portfolios — whether to load on more value stocks or to trim growth stocks. They have also been paying attention to actions taken by central banks to address rising food and energy prices.
Every day, investors swing between optimism and anxiety as they take in the latest developments related to COVID-19, inflation and the macroeconomy, but what they care about most is whether the world is running normally and in a balanced manner. The current market correction is of course worth great attention, but for investors, the underlying macro challenges and cyclical changes facing local industries and enterprises are even more of an issue worthy of pondering.
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