Can the Taiwan stock market recover from its sharp fall? Scholars warn of major risks

Taiwan's stock market has been volatile recently, falling in consecutive days, causing many investors to suffer.

[Reporter Liao Jianing/Taipei Report] The results of the U.S. midterm election affected the stock market’s expectations for future AI construction, and the trend of Taiwan’s stock market was turbulent. Scholars point out that Taiwan’s outstanding economic growth is related to investment in data centers and AI servers. In addition to the direction of U.S. policy, we still need to pay attention to the weakening of the U.S. economy and household consumption power. If the U.S. moves toward stagnant inflation, it will affect U.S. companies’ investment in AI.

Lian Xianming, president of the China Economic and Trade Commission, said a few days ago that he was talking to friends from an American think tank about the midterm elections and asked about the impact of the Republican Party's defeat in the election. He originally thought that the budget and policy would be boycotted by the Democratic Party. Unexpectedly, based on the experience of the late period of Trump's first term as president, the American think tank friends concluded that many cabinet ministers would be impeached. What is surprising is that U.S. Commerce Secretary Lutnick is the first person to be impeached. It will be interesting to see whether these cabinet members can successfully succeed in the impeachment process.

Wu Daren, a professor at the Department of Economics at Central University, has previously pointed out that some of the more important information is related to the weakening of the consumption power of the United States. The situation in the United States is that as inflation becomes more and more serious, household consumption capacity is affected. Signs can also be seen from other indicators. First, the amount of retail sales in the United States has experienced "zero growth", indicating that consumers are more inclined to be budget-conscious when purchasing, and overall consumption is stagnant.

Wu Daren pointed out that the U.S. household debt is about 18.8 trillion U.S. dollars, and the scale of credit card debt exceeds 1.25 trillion U.S. dollars. These are very impressive figures. The scale of U.S. card debt indicates that the U.S. economy may be starting to have problems. If inflation continues, causing the economic situation of U.S. households to get worse and worse, the U.S. may actually move towards stagnant inflation, and corporate investment will be affected.

Wu Daren pointed out that Taiwan’s exports mainly rely on the investment of American companies in AI equipment. However, the market has doubts about AI. If the company’s revenue is affected by the weakening of market consumption, but it still has to borrow money to invest in AI projects, will there be big problems in future operations? Companies originally dared to spend large sums of money to invest in AI in anticipation of good revenue in the future. However, if future revenue does not meet expectations, the company may reduce its investment in AI projects, which will affect the performance of Taiwan stocks, especially now that concerns about the risks of AI investment have not been eliminated and continue to exist.