World's worst stock rout deepens as Taiwan tightens Covid-19 curbs

The sharp reversal in Taiwan stocks is a warning to highly leveraged investors around the world. PHOTO: AFP

TAIPEI (BLOOMBERG) - Taiwan stocks slumped, extending their biggest rout in more than a year, as the government tightened restrictions on people and businesses to control its worst outbreak of the coronavirus.

The Taiwan Stock Exchange Weighted Index closed on Monday (May 17) 3 per cent lower, having slid as much as 4.2 per cent, as authorities urged companies to allow staff to work from home or split locations after reporting a record 206 new local cases on Sunday. The benchmark gauge sank 8.4 per cent last week on concern about the impact on growth, the most since March 2020, turning Taiwan stocks into the world's worst performers so far this month.

Forced selling may add volatility to Monday's trading, with the level of margin debt falling by a net NT$5.8 billion (S$275.7 million) on Friday, according to exchange data compiled by Bloomberg. That took the four-day drop in leverage to NT$39.4 billion, showing traders faced margin calls by brokers to cover losses in their stock accounts.

The sharp reversal in Taiwan stocks is a warning to highly leveraged investors around the world. The Taiex was the world's best performing equity gauge in the three years through April, surging almost 80 per cent in U.S. dollar terms, as a seemingly never-ending rally in tech shares pulled in retail investors.

"In light of rising concerns over the pandemic, we expect more volatility ahead, and advise to stick to defensive names with low P/E and high dividend yield," said Patrick Chen, CLSA's Head of Taiwan Research. His team's top picks include Taiwan Semiconductor Manufacturing Co and Hon Hai Precision Industry Co.

Travel and consumption-linked names were among the big losers in the market on Monday. Restaurant operators Gourmet Master and Wowprime Corp plunged almost 10 per cent each, while shares of Formosa International Hotels Corp and The Ambassador Hotel slumped at least 4 per cent each.

Taipei City will close high schools, elementary schools and kindergartens for two weeks through May 28 to prevent the pandemic from spreading, Mayor Ko Wen-je said at online briefing. Taiwan added 333 local Covid-19 cases on Monday, a fresh record.

"Investors are worried as school closures could mean the virus is spreading fast," said Edward Chen, chairman of First Capital Management. "However, there's no need to panic as the Taiwanese people are vigilant in Covid prevention. It would be another story though if factory production lines are forced to stop."

Taiwan and Singapore are among the Asian regions that have seen a fresh wave of Covid-19 cases in recent days, and both have tightened virus-related restrictions. Singapore's stock benchmark slid as much as 0.9 per cent on Monday before reversiung course.

Taiwan's stock exchange urged investors not to overreact. The latest development in Covid fighting is relatively controllable, and the fall in stock market last week should be already priced in the situation, the bourse said in a statement issued late Sunday night, adding that stabilizing measures will be adopted if the market becomes irrational.

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