Tough for Taiwanese equities last year

EXTERNAL FACTORS:
The TAIEX fell 22 percent last year and TSMC shares plunged 27 percent as geopolitical tensions and global rate hikes weighed on markets

The major stock market slumped last year, hurt by geopolitical tensions, aggressive rate hikes by the US Federal Reserve and weaker demand in the electronics sector in the second half of the year.

The TAIEX closed higher on Friday, the last trading day of last year, gaining 52.67 points, or 0.37 percent, to end the year at 14,137.69.

However, that was a drop of 4,081.15 points, or 22.4 percent, from the end of 2021, dropping the market cap by about NT$12.16 trillion (US$395.99 billion) to NT$44.27 trillion.

Photo: CNA

That sudden drop in market capitalization averaged out to a loss of about NT$1 million for each of the 12 million investors who have accounts to trade stocks on the Taiwan Stock Exchange after averaging a profit of NT$960,000 in 2021 made, as the TAIEX rose 23.7 percent year-on-year.

The first few days of last year looked promising, with the TAIEX reaching an all-time high of 18,619.61 on January 5.

However, it began to pull back on concerns that valuations were too high, and downward pressures accelerated after Russia invaded Ukraine on February 24, causing the TAIEX to fall to around 16,764 in early March.

Last April, the Omicron variant of SARS-CoV-2 started spreading in the country, hurting domestic economic activity and sending the TAIEX even lower to 15,616.68 at the end of May 12.

The worst was yet to come. After raising key interest rates by 25 basis points in March and another 50 basis points in May to contain inflation, the Fed became even more aggressive as several inflation measures remained stubbornly high.

After each of its policy meetings in June, July, September and November last year, it penetrated by 75 basis points, and last month by 50 basis points, sending global stock markets into a tailspin.

With global markets, and by extension Taiwanese markets, becoming volatile, the Board of Directors of the National Financial Stabilization Funds on June 12 authorized the fund to intervene to support stock prices.

The NT$500 billion Stabilization Fund was established by the government in 2000 to act as a buffer against unexpected external factors that could disrupt local equity markets.

In addition, escalating tensions in the Taiwan Strait created downside risks for the TAIEX.

Those factors caused the TAIEX to drop to an intraday low of 12,629.48 on Oct. 25 last year, down 30.7 percent from the start of the year. It rebounded by more than 2,500 points in November before going into consolidation mode last month.

Traders said the Fed’s aggressive actions led foreign institutional investors to move funds from the region into US dollar-denominated assets to take advantage of higher bond yields in US markets.

Those higher returns made technology stocks, which generally pay relatively low dividends, less attractive, hurting publicly traded Taiwanese electronics companies, especially Taiwan Semiconductor Manufacturing Co (TSMC, ), the most heavily weighted stock in the local market.

Last year, TSMC shares plummeted NT$166.50, or about 27 percent, to close at NT$448.50 as foreign institutional investors were net sellers of more than 1 billion shares of the stock.

At the end of last year, foreign institutional investors accounted for about 70 percent of TSMC’s outstanding shares, up from 75.06 percent a year earlier.

While the number of TSMC shareholders who owned 1 million shares or more fell by 60 on Dec. 23 from the beginning of last year, the number of small retail investors buying TSMC in odd lots less than the standard lots of 1,000 shares fell. rose by more than 300,000.

At the same time, from the end of 2021, the number of smaller investors also increased from 1,000 to 5,000 shares with 160,000 people.

Despite TSMC’s volatility, Warren Buffett-led Berkshire Hathaway Inc reported to the U.S. Securities and Exchange Commission last November that it had acquired approximately 60.1 million U.S. depositary receipts from TSMC worth more than $4.00 by the end of the third quarter. owned $1 billion.

Analysts said Buffett’s investment demonstrated his long-term confidence in the world’s largest contract chipmaker, which is expanding its reach abroad by building wafer factories in the US and Japan.

In addition to Buffett, TSMC CEO CC Wei () bought 400,000 shares of the company on the open market in October and November last year to show his confidence in TSMC.

Capital Securities Corp () analyst Liao Chien-yu () said light trading on the exchange is expected to continue before the Lunar New Year holiday, which was set to begin Jan. 20 and last through Jan. 29.

Investors should look to continued inventory adjustments in the global electronics industry and trends in the US economy in response to the Fed’s large rate hikes as indicators of their investment strategy early this year, Liao said.