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Taiwan’s retail traders are buying more stocks after a sharp market drop, even as some face heavy losses and long-term debt repayments. The Taiex fell 6.5% in July and at one point was heading for its worst monthly decline since 2008. Local investors continued buying shares and exchange-traded funds.
The continued buying has increased attention on retail leverage. It has also raised questions about how brokers manage risk during sharp market swings.
Retail Investors Keep Buying TSMC and ETFs
The number of small shareholders in Taiwan Semiconductor Manufacturing Co. rose to 2.5 million by the end of July, up from about 2.3 million in June. The figures classify small shareholders as investors holding fewer than Taiwan’s standard 1,000-share trading unit.
Yuanta’s Top Taiwan 50 ETF also added more than 100,000 small investors during July. The fund is Taiwan’s largest ETF, with more than $70 billion in assets under management. Jimmy Yu, who leads ETF and mutual fund product strategy at Cathay Securities Investment Trust, said:
“Retail investors have shown little sign of panic selling in Taiwan equity ETFs.”
Traders Add Collateral Instead of Selling
The market decline triggered a rise in margin calls, with some brokerages handling hundreds of cases within days. Brokerages reported relatively few forced liquidations because many investors added collateral instead of selling.
Leverage has fallen about 20% from its peak. Outstanding margin loans now equal about 0.6% of the market’s free float, while money continues flowing into broad domestic equity ETFs.
Dorian Hsu, a 33-year-old office worker, said he borrowed about $62,000 through an unsecured loan and recorded more than $150,000 in unrealized losses across his wider leveraged portfolio during July. Despite the losses, he said he still planned to look for new opportunities in the market.
Taiwan Regulator Adds New Leverage Dashboard
Taiwan’s Financial Supervisory Commission has met with brokers to review risk controls following the market swings. Some firms now alert clients when their collateral falls to 1.5 times the amount they owe. The legal margin-call level is 1.3 times the amount owed.
The Taiwan Stock Exchange plans to launch a dashboard by the end of September showing margin loans, collateral ratios, securities lending and unrestricted-purpose loans. The tool is intended to give investors and regulators a clearer view of leverage levels across the market.
