A record rally in Taiwanese stocks is luring retail investors to pile into exchange-traded funds (ETFs), as local regulators stepped up warnings on the herding behavior.
Two new stock ETFs this month raised a combined NT$223.1 billion (US$7.05 billion), with the latest one which ended subscriptions on Friday last week setting a new record.
This brings the total inflows into equity ETFs to about NT$340 billion, more than half of last year’s, underscoring how the global market frenzy around artificial intelligence (AI) is spurring local demand for exposure to a technology-heavy market.
Photo: CNA
Central bank Governor Yang Chin-long (楊金龍) last week described the enthusiasm for ETFs as a “herding effect” in the market.
“Everyone is buying like a swarm of bees,” Yang said at a meeting of the legislature’s Finance Committee on Thursday, answering lawmakers’ questions about the surging popularity in ETFs tracking Taiwanese stocks. “It is becoming something of a bandwagon, just like sheep jumping in one after another,” he said.
He added that such funds helped drive up risk in the stock market, which could lead to greater volatility in the long term. That is set to be a challenging job, as local stocks are powered by a record rally in Taiwan Semiconductor Manufacturing Co (台積電), which supplies the majority of the advanced chips used for AI.
A financial expert warned that the rallies or falls in ETFs’ constituent stocks could affect their movements and investment returns.
“When the ETF goes on the market, if there are fluctuations and corrections, some subscribers may jump ship, as many of them likely do not have any experience in stocks or they are more conservative with their finances. Such a reaction could lead to turbulence that only grows faster and more violent,” financial expert Chen Wei-liang (陳威良) told Formosa TV on Friday.
Yuanta Taiwan Value High Dividend ETF has raised NT$170 billion, breaking a record set by UPAMC Taiwan High Dividend Momentum ETF earlier in the month at NT$53.1 billion, Securities and Futures Bureau Deputy Director Kao Ching-ping (高晶萍) said yesterday.
“The future outlook of the constituent stocks should be taken into account in purchasing any ETFs, and past performance does not equate to future performance,” Financial Supervisory Commission Chairman Thomas Huang (黃天牧) said at a briefing yesterday, adding that ETF issuance would be the focus of regulatory checks.
The commission is considering control measures, including introducing caps on how much can be raised by a single ETF, local media reported earlier.
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