Taiwan Stock Market Sees Surge in 'Debt-Fueled' Investing; Margin Loans Up 160% in a Year

Bloomberg reported that the number of retail investors in Taiwan taking out loans to buy stocks, a phenomenon known as "debt-fueled investing," is rising sharply.
According to Bloomberg on June 23 (local time), the Taiwanese stock market has surged over the past year, surpassing the UK, Canada, and India to become the world's fifth-largest stock market.
Major Taiwanese tech companies, including TSMC, the world's largest semiconductor foundry, have driven the market rally as they emerged as beneficiaries of expanding AI infrastructure.
Bloomberg noted that amid this rapid market rise, a sentiment has spread among Taiwanese retail investors that "you make money no matter what you buy."
This has been compounded by the "fear of missing out" (FOMO).
Thanks to Taiwan's low interest rates, leveraged investing—where individuals borrow money to buy stocks without sufficient capital—is soaring.
The balance of margin loans in the Taiwanese stock market, an indicator of debt-fueled investing, has increased by 160% over the past 12 months, nearing the all-time high recorded during the dot-com bubble burst in 2000.
This growth rate significantly exceeds the 94% increase in margin loan balances seen in the South Korean stock market during the same period.
As brokerage firms reach their limits for margin loans, investors are increasingly turning to bank loans or liquidating financial products to secure "ammunition" for their investments.
Local experts are issuing warnings that the market situation is entering a dangerous phase.
Wu Da-lan, a professor of economics at National Central University in Taiwan, pointed out in an interview with Bloomberg, "The Taiwanese stock market is clearly overheated." He added, "Young investors who view stocks as an easy way to make money could face fatal losses if a sharp market downturn occurs, so government measures to stabilize the market are necessary."
This month, the volume of failed stock purchase settlements in the Taiwanese market exceeded 2 billion New Taiwan dollars, marking the highest monthly figure since relevant statistics began to be published in 2019.
However, there are also counterarguments.
Some argue that the current rally is based on the actual earnings of AI-related companies, and therefore cannot be viewed as a "bubble" like the dot-com frenzy of the 2000s.
In particular, as Taiwanese companies supply more than 90% of the world's advanced semiconductors, there is growing consensus that the favorable trend driven by increased AI infrastructure investment will continue for the time being.
The Taiwanese financial investment industry is also showing signs of self-regulation, mindful of the potential for risk to spread.
Major brokerage firms are significantly raising margin loan interest rates and reducing loan limits for high-risk stocks in an effort to curb the overheating of debt-fueled investments.
Alicia Garcia-Herrero, chief economist for Asia-Pacific at the French investment bank Natixis, analyzed, "If global AI momentum slows, the impact will not be limited to the stock market." She added, "It could exert downward pressure on Taiwan's overall economic growth as the blow to the securities industry and the contraction in household consumption overlap."
(Photo: Getty Images Korea)
※ Please note: This article was translated by AI and may contain errors.