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Overview
Taiwan’s Taiex slid in April. An uptick in virus cases and heavy tech weighing were the spark, huge leveraged positions from retail stoked the blaze.
The Taiex index has been notorious for spectacular plunges since the 1990s. Traders may decide that it is no time to be brave and hold onto long exposure when high-to-low declines of 50% or more are not uncommon in Taiwan.
Retail investors account for the majority of trading in Taiwan and are often leveraged, making them likely to be the main cause of the volatility. Margin loans have exploded this year as stocks have surged, hitting the highest in almost a decade in late April.
Chart 6: Taiwan equities can be volatile
Source: Bloomberg
Announced buybacks are at an all-time high. The figure reached $205 billion in April, surpassing a previous high in June 2018, data compiled by Birinyi Associates show.
Strategists at Deutsche Bank caution against getting too excited about the trend. The value of new shares issued keeps climbing. It hit a record $770 billion in 2020 and could rise even further this year. In that case, new shares issued will all but cancel out the $900 billion of shares expected to be removed via buybacks, the bank’s strategist say.
Chart 7: Largest US buyback announcements ($USbn)
Source: Bloomberg
Gold is having a good quarter thanks to falling real yields.
The precious metal is up 9% so far in 2Q, reversing course from the worst quarter since 2016. That comes down in large part to real yields that continue to slide further into sub-zero territory, as inflation picks up around the world spurred by loose monetary and fiscal policies as well as a surge in commodity prices.
As a result, the negative-yielding nominal debt pile has rebounded from its 8-month low reached at end-March. Add in the dollar’s weakness along with central banks returning as net buyers of bullion. All that may still be insufficient to convince long-term gold bears, but the near-term horizon is getting clearer for the metal.
Chart 8: US 10-year real yield (%) and gold (USD/oz)
Source: Bloomberg
