Taiwan stocks face panic selling, advised to hold below 43,000 points

The Taiwan Stock Exchange (TWSE) suffered a historic collapse on July 17, plummeting by 2,935 points and raising concerns about continued panic selling in the following days. Despite the dramatic downturn, investment advisory firms are urging investors not to sell stocks when the index falls below 43,000 points, maintaining a positive outlook on the market's long-term fundamentals.

The market's sharp decline has been attributed to several factors, including a conservative interpretation of TSMC's earnings call and broader global market instability. Neighboring South Korea's stock market, heavily influenced by volatile memory chip stocks and leveraged ETF investments, has experienced multiple circuit breakers this year, fueling fears of a similar "Black Monday" in Taiwan.

Globally, major U.S. indices, including the Dow Jones Industrial Average, S&P 500, Nasdaq, and the Philadelphia Semiconductor Index, also saw significant declines. This widespread market weakness has shaken investor confidence, particularly in AI-related stocks.

Analysts at Yong Feng Investment Trust noted that while TSMC's performance and outlook appear strong, initial low yields and increased depreciation in advanced manufacturing processes, coupled with insufficient new factory capacity, are pressuring profitability. This sensitivity to profit margins has led to a substantial pullback in the stock price.

Despite these short-term pressures, advisory firms maintain that Taiwan's fundamental economic outlook remains intact. They recommend a wait-and-see approach for short-term trading but advise accumulating stocks on dips, emphasizing that the market's price-to-earnings ratio below 43,000 points presents a low-risk buying opportunity. The index is expected to trade within a range of 40,000 to 45,000 points this week.