Taiwan Stock Market Plummets, Retail Investors Face Margin Calls; Worst-Case Scenario Could Trigger Mass Margin Calls Near 41,200 Points

Taiwan's stock market saw heavy selling pressure today (28th), with the index dropping over 2,000 points at one point during afternoon trading. Multiple moving averages now act as strong resistance levels above the current price. As of yesterday, the overall market's margin maintenance ratio stood at 150.23%, with margin debt totaling NT$568.7 billion. According to Yuanta Securities, based on recent market trends, every 144-point decline reduces the maintenance ratio by approximately 1%. This suggests that if the index falls below approximately 41,250 points—the level corresponding to the 130% margin call threshold—widespread forced selling ('short covering cascade') could occur.

The Central Bank of Taiwan recently reported that margin debt in the stock market reached NT$803.5 billion by the end of June, a record high. While the central bank noted that high household savings are reflected in securities settlement account deposits totaling NT$4.4237 trillion, it urged investors to enhance their risk awareness.

Yuanta Securities' analysis indicates that for every 144-point drop during this correction phase, the margin maintenance ratio decreases by 1%. The critical 130% threshold, at which brokers issue margin calls, corresponds to approximately 41,250 points. Therefore, in the worst-case scenario, breaching this level could trigger a wave of margin calls and a destructive sell-off.

Meanwhile, the U.S. Federal Reserve's two-day interest rate meeting, taking place today and tomorrow, is closely watched for its impact on foreign institutional flows. Capital Securities Investment Consulting forecasts that the Fed will hold rates steady, citing strong U.S. economic fundamentals that do not require rate cuts, ongoing Middle East uncertainty, and persistently high oil and consumer prices. Future decisions will depend on upcoming economic data.

Additionally, the New Taiwan Dollar closed at NT$32.423 per U.S. dollar during midday trading today, depreciating by NT$0.118, reflecting continued weak sentiment and strong global risk-aversion trends.