The Financial Supervisory Commission (FSC), the top financial regulator in Taiwan, on Tuesday announced a further tightening of short selling rules for equity trading after the local main board plunged to its lowest level in two years that day.
The announcement marked the second raft of measures introduced by the FSC to tighten short selling rules since Oct. 1.
Starting from Wednesday, the FSC said, the maximum volume of intraday security lending for short selling of a stock will be cut to 10 percent of the stock’s average daily trading volume over the previous 30 trading sessions, from the current 20 percent, after being lowered from 30 percent on Oct. 1.
A move to further cut the daily volume of intraday security lending for short selling is expected to allow the local stock market to mitigate downward pressure at a time of growing fears over a hawkish U.S. Federal Reserve and its rate hike cycle amid rising concerns over fast growing inflation, market analysts said.
Also from Wednesday, the deposit for securities borrowing by an investor will be raised from 100 percent of a stock’s value to 120 percent, after being increased from 90 percent on Oct. 1, the FSC said.
Such a move to raise deposits on securities borrowing is expected to push up costs for investors who want to short the market, betting the price of a stock will fall and they can buy the stock later to return the stock to their lenders, analysts said.
The FSC’s announcement on Tuesday came after the Taiex, the benchmark weighted index on the Taiwan Stock Exchange, plunged 596.25 points, or 4.35 percent, at the day’s low of 13,106.03, the lowest closing level since Nov. 10, 2020, when the benchmark index closed at 13,081.72.
With Washington reporting strong jobs data for September, investors at home and abroad believe the Fed will raise rates by an additional 75 basis points in November after a 3-percentage point hike since March, which triggered the latest sell-off.
Apart from lingering concerns over the Fed’s aggressive rate hikes, a decision by the U.S. Department of Commerce at the end of last week to expand restrictions on exports of IC and related production equipment also placed downward pressure on the local tech sector.
Among the large cap electronics stocks, contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), the most heavily weighted stock on the local market, tumbled more than 8 percent on Tuesday after foreign institutional investors registered net sales of 44.77 million TSMC shares, the largest net sale among the stocks listed on the local main board.
While announcing the tighter short selling rules, the FSC reiterated the local stock market remains fundamentally sound and the latest heavy losses largely resulted from external factors.
In addition to a rate hike cycle by the Fed, Chang Tzu-ching (張子敬), deputy director of the FSC’s Securities and Futures Bureau, said the local equity market also faces headwinds from escalating geopolitical tensions, referring to the war waged by Russia against Ukraine.
Foreign institutional investors have sold a net NT$1.27 trillion (US$39.81 billion) worth of shares on the local stock market this year with the Taiex plunging more than 5,000 points or 29.6 percent from an interday high of 18,619.61 points seen in mid-January
However, Chang said foreign investors still had recorded more than US$200 billion in accumulated net fund inflows into Taiwan as of the end of September after the government lifted a ban on foreign institutional investments in the local bourse at the end of 1990.
The large accumulated net fund inflows show foreign institutional investors continue to pour funds into the local stock market, Chang said.
According to the National Stabilization Fund committee, Taiwan still enjoys healthy economic fundamentals as inflation appears relatively stable, referring to the September consumer price index (CPI), which grew 2.75 percent, much lower than many economies in the West.
The committee said the average dividend yield on Taiwan’s stock market hit 5.38 percent and the average price-to-earnings ratio (PE ratio) stood at 9.68 in September, indicating the local equity market remains attractive.
The dividend yield represents how much a company issues in dividends relative to its latest closing share price, while the PE ratio measures its current share price relative to its per-share earnings.
The NT$500 billion stabilization fund, set up in 2000 by the government to serve as a buffer against unexpected external factors that might disrupt the local bourse, has been authorized to intervene in the market since July 12.
Source: Focus Taiwan News Channel