Institutions: 3 Signals Emerge, Including Expanding Margin Balances, Suggesting Short-Term Consolidation for Taiwan Stocks

(CNA) Taiwan stocks were closed on Friday last week for the Dragon Boat Festival, trading only four days. The main stock index closed at 46465.20 points on Thursday, up 2296.16 points or 5.2% for the week, reaching a new closing high. However, institutional investors noted that the rapid expansion of margin balances, the slowing momentum of high-priced and leading stocks, and the shift of funds into thematic and lagging sectors signal emerging correction pressure. The short-term market is expected to enter a consolidation phase.

Following Federal Reserve Chairman Powell's first FOMC meeting, the dot plot indicated an increased probability of interest rate hikes in the second half of the year. Additionally, while the US and Iran reached a memorandum of understanding last week, Israel's continued offensive in Lebanon means the final peace treaty remains uncertain, with mixed market signals.

US stocks were closed on Friday last week for Juneteenth National Independence Day. On Thursday, led by chip stocks, the Dow Jones Industrial Average rose slightly by 0.14%. The S&P 500 index surged 1.08% to close at 7500.58 points. The Nasdaq Composite Index jumped 1.91%, and the Philadelphia Semiconductor Index soared 6.42%.

In terms of individual stocks, the semiconductor sector showed strong gains. DRAM manufacturer Micron Technology's stock price rose by $90.80 or 8.7% to close at $1133.99. Module maker Sandisk surged $225.95 or 11.54% to close at $2184.75. NVIDIA gained $6.04 or 2.95% to close at $210.69. Taiwan Semiconductor Manufacturing Company (TSMC) ADR rose $29.97 or 6.94% to close at $462.12.

Ko Hung-min, fund manager at Schroder Investment Management Taiwan, analyzed that from recent market structures, there are three key indicators for Taiwan stocks that warrant close attention: the rapid expansion of margin balances, the slowing momentum of high-priced and leading stocks, and the shift of funds into thematic and lagging sectors.

Ko Hung-min pointed out that the leading sectors are experiencing profit-taking and are struggling to reach new highs, indicating a more conservative market reaction to positive news. The flow of funds from core industries to second and third-tier or thematic stocks reflects a gradual weakening of market momentum. When these three signals appear simultaneously, it often signifies a transition from an upward trend to a consolidation phase.

However, Ko Hung-min believes that a correction does not represent a reversal of fundamentals. Moderate consolidation can help digest overheated chips, leading to a healthier market structure. (Editor: Lin Chia-hsien) 1150622

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