Shares in Taiwan took a significant hit on Wednesday, with the main stock index plummeting by over 300 points. The market downturn followed the decision by ratings agency Fitch to downgrade the credit rating of the United States. This move created a sense of unease among investors, who feared that the US markets would also experience a sharp decline. The electronics sector, particularly stocks related to artificial intelligence development, experienced the most significant losses as investors rushed to secure their recent gains made amidst the AI frenzy.
The weighted index on the Taiwan Stock Exchange, known as the Taiex, closed at 16,893.73, down 319.14 points or 1.85 percent. The market opened slightly lower and remained within a narrow range initially. However, as other regional markets in Tokyo, Seoul, and Hong Kong experienced steep declines, selling pressures intensified among Taiwanese investors. The downturn continued throughout the session, and the Taiex dropped below the 20-day moving average.
Analysts believe that the downgrade of the US credit rating by Fitch has raised concerns about the country’s debt levels. They anticipate that this could trigger a sell-off in the US markets, posing significant risks for global markets. As a precautionary measure, many investors in the region decided to reduce their holdings to avoid further losses in the future.
Artificial intelligence-related stocks were hit particularly hard during the sell-off. These stocks had been overvalued due to widespread market speculation surrounding the AI sector. Consequently, they became the primary target for investors looking to offload their holdings. Among AI server suppliers, Quanta Computer Inc., Wistron Corp., Inventec Corp., Wiwynn Corp., and Lite-On Technology Corp. all experienced significant declines.
However, the semiconductor industry managed to hold its ground relatively well, as valuations of many integrated circuit (IC) stocks were considered reasonable. Contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), one of the most heavily weighted stocks in the local market, lost 1.06 percent, while United Microelectronics Corp., a smaller contract chipmaker, dropped 0.74 percent. Smartphone IC designer MediaTek Inc. also experienced a decline.
In addition to the technology sector, the financial sector also experienced losses. The decline in financial stocks was particularly noteworthy as they had recently served as a stabilizing force in the broader market. Large-cap financial stocks such as Cathay Financial Holding Co. and Fubon Financial Holding Co. saw decreases in their share prices.
However, not all sectors experienced negative impacts. Select cable and wire suppliers received a boost from the news that South Korean physicists claimed to have developed a new room temperature superconductor called LK-99. This breakthrough has the potential to accelerate the development of fusion energy, next-generation batteries, and quantum computing. Hua Eng Wire and Cable Co., Ta Ya Electric Wire & Cable Co., Walsin Lihwa Corp., and First Copper Technology Co. all witnessed positive price movements in response to this innovation.
While the performance of the US markets remained uncertain, analysts suggest that investors should carefully monitor the current earnings season. Furthermore, despite the volatility, investors seeking safety may be drawn to certain sectors or stocks considered safe havens.
Overall, the downgrade of the US credit rating by Fitch had a significant impact on Asian markets, including Taiwan. Investors opted to sell off stocks, causing the Taiex to drop by over 300 points. The technology and financial sectors were particularly affected, with AI-related stocks experiencing substantial declines. The semiconductor industry fared better, while certain cable and wire suppliers saw positive price movements due to a breakthrough in superconducting technology. Investors are advised to exercise caution and closely follow market developments in both the US and Taiwanese markets.
