The TAIEX last month rose above 17,000 points as rallies in steel, shipping and some non-tech stocks offset a weakness in semiconductor and electronics stocks. While news about a cluster of local COVID-19 infections connected with China Airlines cargo pilots and a hotel in Taoyuan fueled selling pressure early this month and pushed the local stock market into consolidation mode, the daily market turnover in the first two trading sessions of this month hit fresh highs.
Moreover, Taiwan’s stock trading volume last month began to surpass that of Hong Kong for the first time in 15 years, which was beyond most market participants’ expectations.
Taiwan’s daily market turnover exceeding Hong Kong’s might gradually become a new normal from this year, and there are good reasons for this.
First, Hong Kong’s stock market has lost its appeal to foreign investors since China last year imposed national security legislation on the territory, triggering a potential flight of capital and talent.
Second, many wealthy Taiwanese tend to park their overseas funds in Hong Kong, China, Singapore, Switzerland and the US, but government statistics showed that more than 80 percent of funds repatriated by wealthy individuals last year were from Hong Kong, as they saw the political situation in the territory worsen after its self-governance, human rights and freedom of speech were further suppressed.
Third, China’s new NASDAQ-style stock board — the Shanghai Stock Exchange’s STAR board — has emerged as a fast-growing capital markets center for Chinese companies at a time when rising China-US tensions have triggered concerns about their prospects of listing in New York, posing a growing challenge to the Hong Kong stock exchange.
On the other hand, Taiwan’s economic fundamentals, the central bank’s adoption of extraordinary monetary easing and the government’s fiscal policies have fueled continued rallies in the nation’s stock market since last year.
It might be too early to tell how long the consolidation trend might last, as a resurgent COVID-19 outbreak is coloring the global economic outlook, but some insight can be drawn from the stock market: Taiwan’s GDP grew a larger-than-expected 8.16 percent in the first quarter, as exports and private investment remained healthy. Of course, the stock market has benefited disproportionately from Taiwan outperforming its regional peers in combating the COVID-19 pandemic and supply chain realignments resulting from US-China tensions.
However, the stock market has also ushered in a structural change with the continued rise of retail investors and their influence on local equities. For retail investors, the nature of equities as real assets has been especially highlighted in their wealth management, as they pull funds from the real-estate and insurance segments due to rising housing prices, changes in the tax system and the low interest rate environment.
Yet it is obvious that a 2017 tax cut on day trading transactions and the implementation of odd-lot intraday trading last year encouraged young investors and small-cap buyers to participate in the local stock market. They are also more willing to enter the market with the help of social media discussions, where they exchange investment experiences and information.
These structural changes are likely to keep funds in the stock market unless the celebratory mood changes drastically or equities suddenly slide into a bear market.
With the TAIEX having rallied for more than a year, a short-term pullback is likely for local equities, as it is more difficult for investors to select stocks for accumulation given the significantly higher base for share prices and because of the number of local COVID-19 cases. Nonetheless, with solid support in terms of market liquidity and economic fundamentals, the market might not be in danger of any systematic risks or significant pullbacks any time soon.
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