Taiwan Stocks Plunge Over 2,000 Points – Just the Beginning? Shih Jun-Ji Warns of Two Looming Storms: TSMC Could Become Global ATM

On August 28, Taiwan's stock market closed at 41,603.36 points, down 2,030.83 points—the third-largest daily decline in history—triggering widespread panic among investors.

In response, former Vice Premier and former head of Taiwan's Financial Supervisory Commission (FSC), Shih Jun-Ji, posted an analysis on Facebook. He warned that if the U.S. Federal Reserve (FED) adopts a hawkish stance and raises interest rates—even by just 25 basis points—it could trigger a 'double unwinding storm.' The first to be affected would likely be Taiwan Semiconductor Manufacturing Company (TSMC, 2330) and the AI server supply chain.

Shih explained that financial markets have historically been most volatile between August and October, a period often referred to as the 'financial typhoon season.' Citing Financial Times columnist Gillian Tett, he noted that most major financial crises over the past century have occurred during this window, urging investors to remain vigilant in August.

He emphasized that a Fed rate hike could trigger two cascading effects: the unwinding of 'yen carry trades' and 'U.S. Treasury basis trades.' Each of these hedging strategies involves over $1 trillion (approximately NT$32 trillion) in exposure. If global financial institutions face liquidity pressure—needing to repay yen-denominated loans or post additional futures margin—they may turn to highly liquid blue-chip stocks like TSMC and AI server-related equities as their first source of cash, effectively turning them into a 'global ATM' and exacerbating selling pressure.

Shih stressed that such sharp declines driven by 'high leverage' and 'arbitrage unwinding' are 'technical corrections,' not signs of deteriorating fundamentals or an AI bubble burst. While these storms arrive quickly and dissipate just as fast, investors should avoid panic but remain cautious, carefully managing risk and asset allocation.

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