Why Did Taiwan's Stock Market Plummet? Hsieh Jin-He Reveals 3 Key Factors: TSMC, South Korea's Leverage, and 'This One Sector'

Last Friday, Taiwan's stock market experienced a violent selloff, with the weighted index plunging 2,953.71 points, a 6.47% drop—the largest point decline in history, though not the highest percentage drop. The record percentage drop occurred on April 2 last year, when Trump unveiled his reciprocal tariff plan, reading out tariff rates for each country. Taiwan was on spring break, but on April 7, markets opened nearly flat, with even TSMC hitting the daily limit down. The index fell 2,065.87 points, or 9.7%. With a 10% daily limit, nearly all stocks hit the lower circuit, and such non-economic shocks often create good buying opportunities.

Take TSMC, the most influential stock in Taiwan. On April 7, it hit limit down at NT$848, dropped another NT$32 on the 8th to close at NT$816, and on the 9th dipped to a low of NT$780, closing at NT$785—arguably the best buying opportunity. Yet amid panic selling, irrational sentiment easily takes over. At the time, a professor from National Taiwan University's College of Management claimed that if TSMC fell below NT$500, CEO C.C. Wei should resign.

This time, the May 17 market crash was partly triggered by TSMC. On May 16, TSMC held its earnings call, drawing intense market attention. As expected, it delivered strong results: Q1 revenue reached NT$1.134 trillion, rising to NT$1.27 trillion in Q2, with first-half revenue totaling NT$2.4 trillion. Net profit increased from NT$572.48 billion in Q1 to NT$706.8 billion in Q2, totaling NT$1.279 trillion for the first half, with EPS at NT$49.33. Gross margin rose from 66.4% to 67.7%—an excellent report. However, the market focused on TSMC’s Q3 guidance: revenue forecast of NT$1.427–1.466 trillion, but gross margin guidance of 65%–67%. This suggested that the 67.7% margin in Q2 might have peaked, cooling market enthusiasm. TSMC’s ADR fell over 3% pre-market, hitting a low of $388.02, and closed down $11.37 (2.77%). This triggered a selloff in Taiwan stocks.

On the 17th, TSMC opened at NT$2,380 under heavy selling pressure, closing at NT$2,290, down NT$180, with foreign investors selling 44,183 lots—another major reason for the market plunge. However, the central driver was South Korea’s memory stock leverage crisis. SK Hynix and Samsung’s double-leveraged positions snapped, causing massive market tremors. Reports indicate over 1.2 million Korean investors faced margin calls, with many leveraged investors facing forced liquidation—damage was severe. With double leverage, SK Hynix surged from 73,100 to 2.987 million won, a near 40-fold rise; Samsung jumped from 49,900 to 374,500 won, up over 650%. But since late May, when Korea approved 16 ETFs targeting Samsung and SK Hynix, both stocks began daily rollercoaster swings—either soaring or crashing. Leveraging at high prices is like grabbing chestnuts from fire. Korea’s Financial Supervisory Service now regrets its decision, but market damage is done. SK Hynix has since fallen from 3.002 million to 1.678 million won, down 43.82%; Samsung dropped from 380,000 to 253,000 won, down 32.44%. Japan’s Kioxia, up 68x this year, also crashed from ¥113,000 to ¥52,110—halved.

The impact spread to Micron, which fell from $125.50 to $80.40, down 34.36%. Storage memory firm Seagate dropped from $235.44 to $132.60, down 43.68%. Seagate Technology and Western Digital also plunged. This chain reaction hit Taiwan stocks—UMC, Powerchip, and Vanguard, all market favorites, hit limit down. With South Korea observing Constitution Day on the 17th, markets were closed, raising concerns for the reopening.

Article authorized by "Insight Investment Weekly, Issue 2414".