Navigating Market Turmoil: How The Taiwan Earthquake Impacted Asian Stocks and FX Trading

By The Insider

@BantingInc

/ 11:54 pm
April 4, 2024

On Wednesday April 3rd Taiwan was hit with a magnitude 7.4 earthquake that has officially claimed the lives of at least 10 people while leaving more than 1,000 injured. However, all around it appears that Taiwan was very well prepared for the earthquake due to its robust early warning system, modern seismic building codes, and a population that is accustomed to seismic activity.

To go further, following the initial earthquake there were more than 300 aftershocks that rocked the island over the next 24 hours up to Thursday morning. The good news is that most of the buildings in the country stood except for a few of the older architecture buildings that were not up to modern seismic codes. Even rail traffic had resumed by Thursday which allowed the country to return to some level of normalcy.

Effect On Business In Taiwan

The effect on manufacturing businesses like TSMC and Hon Hai Precision, 2 of the 3 largest companies in the country, was little more than a 1 day loss of work. When the earthquake struck, manufacturing and retail businesses immediately shut down and moved employees to a secure location, as per earthquake procedure.

After the quake and aftershocks ended, most businesses (as most buildings swayed but never fell) conducted safety checks of their premises, assembly lines, and utilities. Following safety checks, most manufacturing businesses were able to start production again after just a 1 day lull. This is a testament to Taiwan’s earthquake early warning system, modern building design, and resilience of its citizens.

Effect On Asian Stocks As A Whole

Starting with the two largest manufacturers in Taiwan, TSMC and Hon Hai Precision, the effect on their shares listed on American exchanges has been less than 1%. From the start of trading on Wednesday, to the end of trading on Thursday, both companies share prices have fluctuated less than 1%. Furthermore, over the last 5 trading days TSMC is up 2.2% while Hon Hai Precision is unchanged.

Major Asian indexes like China’s “CSI 300” and Hong Kong’s “Hang Seng” have actually risen through Taiwan’s earthquake which is impressive given that Taiwan is the regions largest semiconductor producer. Only Japan’s “Nikkei 225” managed to drop in value and that was probably more to do with Japan’s new monetary policy rather than Taiwan’s earthquake. As for the Taiwan Stock Exchange (TWSE), there was a slight dip in the index’s value on April 3rd but it was nearly recovered before the end of trading on that day. The TWSE looks poised to finish the week with a gain despite the earthquake’s disruption to the economy.

Effect on FX Trading

Most currency pairs were unaffected by the earthquake in Taiwan, similar to the Taiwanese stocks listed on American exchanges and Asian stock indexes as a whole. It’s almost as if many neighbouring countries were aware of Taiwan’s prowess in managing earthquakes, the country appears quite solid in managing this specific natural disaster.

However, the Japanese Yen (JPY) strengthened modestly against the U.S. Dollar (USD) over the last 24 hours as the USD/JPY rate moved from 151.95 to 151.21 over the last 40 hours. Again this was likely due to the sell off in the Nikkei 225 (mentioned above) which led to a demand for JPY as shares were sold for cash within Japan. As for the New Taiwan Dollar (TWD) against the USD, the rate actually remained unchanged from 1:30am on Wednesday April 3rd to when this article was published late April 4th.

To be honest, the TWD actually strengthened against the mighty USD in the midnight and early morning hours of April 4th, all the way to 31.98 (USD/TWD). The current USD/TWD rate currently sits at 32.07 as the USD recovered some ground to finish unchanged through one of the worst natural disasters in 21st century Taiwan.

We don’t know if this is a testament for the weakness of the modern USD or a testament for the strength and resilience of the TWD, we are likely leaning towards the latter. There was little money to be made on FX trading through Taiwan’s earthquake, just a testament towards TSMC’s and Hon Hai Precision’s manufacturing and disaster management prowess, Nvidia beware.