Taiwan's top financial regulator, Peng Jin-lung, chairman of the Financial Supervisory Commission, has urged the island's $630 billion asset management industry to enhance its scale. The goal is to compete as a regional financial hub and leverage Taiwan's strength in the global technology sector, along with the deep capital pools of domestic financial conglomerates. This call for expansion comes as the regulator also announced plans to relax rules limiting actively managed funds from investing more than 10% of their net asset value in a single company's stock. This change, effective shortly after an order issued by the regulator, aims to allow local money managers to better capitalize on the significant surge in Taiwan Semiconductor Manufacturing Co. (TSMC) shares.
The context for these regulatory adjustments is a booming stock market in Taiwan, heavily influenced by the AI frenzy, particularly centered around TSMC. This has led to a significant increase in leveraged stock bets, with investor loans from brokerages to finance stock purchases swelling by 160% over the past 12 months, nearing an all-time high set before the 2000 crash. The intensity of this borrowing is evident in figures like the $1.2 billion in bonds issued by Taiwanese brokers this year, more than seven times the amount in 2025, to fund their lending activities. This borrowing spree is so widespread that it even disrupted a central bank debt auction, which failed to attract enough buyers on June 3 for the first time ever.
Despite the market continuing its ascent, with the Taiwanese market rallying over 100% in the past year to become the world's fifth largest, nascent signs of trouble are emerging. Investor defaults from stock trades more than doubled in June to over NT$2 billion, the highest monthly total since data collection began in 2019. Industry insiders report that margin-loan rates have increased by as much as 0.2 percentage points, and unrestricted loan rates by up to one percentage point, as some brokerages hit their internal lending limits. Experts like economics professor Dachrahn Wu warn that the market is "overheated" and advocate for government intervention to prevent a potential crash that could lead to "devastating losses" for young investors.
