August Stock Investment Confidence Falls Instead of Rising? Scholar Warns: US Inflation Could Impact Taiwan Stocks

Despite a general rise in Taiwan's Consumer Confidence Index (CCI) for August, a key indicator for stock market investment timing has unexpectedly fallen. The sub-index measuring confidence in investing in stocks over the next six months decreased slightly, defying the broader market's recovery during the same period. This divergence suggests underlying economic concerns are overshadowing positive market movements.

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The investment timing in stocks has fallen the most this month, but it only fell by 0.36 points. This drop is not a significant change and can basically be seen as 'flat' compared to last month.

Wu Da-ren, executive director of Central University's Taiwan Economic Development Research Center, attributes this trend to escalating global economic pressures, particularly concerning the United States. He points to the ongoing conflict between the US and Iran, which has kept oil prices high and fueled inflation. This persistent inflation is eroding American households' purchasing power. Wu warns that if the US succumbs to stagflation, a combination of stagnant economic growth and high inflation, it could significantly curtail corporate investment.

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The US is currently facing a situation where as inflation becomes more severe, household consumption power is affected.

Specifically, Wu highlights the potential impact on the artificial intelligence (AI) sector. Many Taiwanese companies are heavily reliant on US corporate investment in AI projects. A reduction in such investment, driven by economic uncertainty or reduced corporate profitability in the US, could directly harm Taiwan's export-oriented stock market. This risk is compounded by existing concerns about the cash flow of several US AI-related companies, some of which have seen their cash flow turn negative.

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If the US moves towards stagflation, corporate investment will be affected, and the US companies' investment in AI projects may decrease, which will affect the performance of Taiwan stocks.

Furthermore, Wu notes the alarming rise in US household debt, including credit card debt exceeding $1.25 trillion, against a backdrop of declining savings rates. This financial strain on American consumers could further dampen demand and corporate revenues, making significant investments in areas like AI less feasible. The high interest rates in the US also increase the cost of borrowing for companies, potentially making new investments less attractive.

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If companies are short of cash, they will have to rely on issuing new stocks for financing, or borrow from banks or issue government bonds. But US interest rates are very high now.