Taiwan stocks plunge nearly 3,000 points; investors flock to US bond ETFs

Taiwan's stock market suffered a historic plunge on Friday, shedding nearly 3,000 points in its largest-ever single-day decline. The sell-off was triggered by a confluence of negative factors, including escalating tensions between the U.S. and Iran, a broader deleveraging trend across Asia-Pacific financial markets, and a necessary correction in previously overvalued stock valuations.

The sharp downturn sent ripples of fear through the market, prompting many retail investors to urgently seek safe-haven assets. Amidst the widespread decline, U.S. Treasury ETFs emerged as a notable exception, with several funds trading in positive territory. Notably, the Yuanta US Treasury 20-Year ETF (00679B) and Cathay 20-Year US Treasury ETF (00687B) saw substantial trading volumes, with the former's volume doubling compared to the previous week.

Analysts suggest that recent U.S. economic data, particularly lower-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) figures, had previously eased concerns about aggressive monetary tightening by the Federal Reserve. While the renewed U.S.-Iran conflict caused a temporary oil price rebound, its impact on the broader market is considered limited in the short term. The prevailing sentiment is that inflation has peaked and is likely to trend downwards.

With global stock markets exhibiting increased volatility, investors are increasingly turning to assets like bond ETFs, which have a low correlation with equities and offer a hedge against risk. Furthermore, if diplomatic efforts between the U.S. and Iran lead to de-escalation, the real economy could return to a path of cooling inflation. While the Federal Reserve may maintain a cautious stance in the short term, a sustained move towards its 2% inflation target could eventually open the door for more accommodative monetary policy.

Given the attractive safe-haven value and potential for capital gains, financial experts recommend that investors consider moderate allocations to long-duration U.S. Treasury ETFs. Such investments can help balance the overall volatility risk within investment portfolios.