Taiwan stock futures plunge overnight; experts urge investors not to sell at the bottom

Taiwan stock index futures saw a dramatic overnight plunge of over 3,000 points, sparking fears of a significant sell-off when the market opens on Monday. The sharp decline followed a broad downturn in U.S. markets, with the Philadelphia Semiconductor Index falling more than 10%.

Financial analysts are urging retail investors not to panic and sell their holdings at the bottom. They attribute the recent volatility to several factors, including the significant gains in the Taiwan stock market over recent months, leading to increased valuation discrepancies. Additionally, margin financing balances remain high, and foreign investors have built substantial short positions, with futures short positions reaching 69,000 contracts. Experts suggest that once the short-term selling pressure eases, the long-term outlook for the Taiwan stock market remains favorable.

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Don't rush to sell, lest you sell at the lowest point.

Wang Wei-che, fund manager at Yuanta Securities Investment Trust, pointed to ongoing positive developments in the technology sector. He cited optimistic outlooks from major wafer manufacturers' shareholder meetings, strong fundamental support for advanced semiconductor demand, and the upcoming Apple Worldwide Developers Conference (WWDC) on June 9. The market is anticipating Apple's AI strategy, alongside the potential listing of SpaceX's historic IPO. These combined factors are expected to support healthy sector rotations.

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The technology sector continues to see positive developments, including optimistic outlooks from wafer manufacturers and strong fundamental support for advanced semiconductor demand.

Yuanta Securities also noted that while the main index experienced a sharp drop of 1,468 points on Friday, it managed to stay above the 45,000-point mark by the end of the day, closing down 606 points. The index had recently hit a record high of 46,552 points with a historical daily turnover of NT$1.9 trillion on May 29. The current rapid pullback suggests a temporary downward trend as technical indicators show significant divergence and the 5-day moving average has been breached.

Fund veteran Hsiao Pi-yen believes a pullback of 10% to 15% (between 39,500 and 41,850 points) is normal. A drop below the quarterly moving average (38,000 points) would indicate a prolonged period of consolidation. Even in a worst-case scenario of a bear market (over 20% decline), she reminded investors that bull markets eventually follow bear markets, citing historical precedents like the 2000 dot-com bubble, the 2008 financial crisis, and the 2022 rate hikes, after which both Taiwanese and U.S. stocks eventually recovered and reached new highs.

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A pullback of 10% to 15% is normal. Even if it falls into a bear market, the bull market will eventually return.