SMAR Daily Industry News

Taiwan Stocks Rally Following New Market Stabilization Measures

Taiwan’s benchmark Taiex Index experienced a significant rally on Monday, climbing as much as 5% in its largest single-day gain since July 31. This rebound effectively ended a seven-session decline that had pushed the technology-heavy market into bear territory. The surge was driven by major players, with Taiwan Semiconductor Manufacturing Co. and MediaTek Inc. both recording gains of at least 5%.

The market recovery follows coordinated efforts by Taiwan’s finance ministry and market regulator to restore investor confidence. To curb volatility, the Financial Supervisory Commission announced new restrictions on short selling, effective Monday. The regulator has reduced the cap on intraday short-sale orders for borrowed securities to 3% of a stock’s average daily trading volume over the previous 30 days, down from the prior 30% limit. Additionally, the minimum margin requirement for short-selling activities has been increased from 90% to 130%.

Authorities also signaled readiness to utilize the NT$500 billion stock stabilization fund if necessary. While the announcement provided an immediate sentiment boost, Goldman Sachs Group Inc. noted that actual capital deployment in past interventions has historically been much lower than the fund's total capacity, ranging between NT$0.76 billion and NT$122.7 billion. Historically, the fund has tended to focus on large-cap technology or financial stocks with significant index weighting.

Data from Goldman Sachs indicates that in the nine previous instances of the fund's activation—including during the Covid-19 pandemic and the global financial crisis—the market rallied an average of 6% in the following week and 22% over the subsequent year. However, the firm also noted that in six of those nine cases, the market experienced further drawdowns of 5% to 28% within six months of the intervention.

For investors, these interventions highlight the tension between government-backed sentiment support and underlying market volatility. While stabilization funds often provide a short-term floor, historical data suggests that long-term recovery remains subject to broader economic pressures, making it essential to monitor whether these measures lead to sustained growth or merely temporary relief.

Why it matters

This intervention highlights how government-led stabilization efforts can impact market sentiment and short-term volatility, serving as a case study for investors monitoring state-backed support in tech-heavy markets.

FAQ

What specific short-selling restrictions were introduced?
The Financial Supervisory Commission capped intraday short-sale orders for borrowed securities at 3% of a stock's average daily trading volume over the preceding 30 days and raised the minimum margin requirement for short-selling to 130%.

How has the stock stabilization fund performed historically?
In nine previous interventions, the market rallied an average of 6% in the week following and 22% over the year, though six of those instances saw additional drawdowns of 5% to 28% within six months.

What caused the market to enter bear territory?
The market entered bear territory following a seven-session selling streak, which occurred amid a global AI stock rout.

Source: Mint Markets. See the original source for full details.