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Stock market likely to fall but firm in long term

The stock market is likely to drop 300-400 points after it reopens today. It was closed yesterday due to the earthquake, and should be able to regain the loss later from foreign investors' buying, analysts said.

Local investors' confidence will be affected in the short term, some analysts said. However, since the infrastructure of most electronics companies was not damaged in the catastrophe, the magnitude of panic selling should be quite limited. Since there are hundreds of foreign institutional investors waiting to acquire more Taiwan stock in the first quarter next year, there should be strong support when the market drops.

"The reconstruction period could be completed in a year. The damage to high technology could cost billions of [NT] dollars, but it could regain production after power is restored," said Liu Tai-ying (劉泰英), chairman of the KMT's investment committee

According to some preliminary estimate by the electronics industry, the total damage of this earthquake could amount to between NT$10 billion and NT$20 billion.

On the whole, a short-term correction of the stock market is inevitable. Even without the earthquake, the market had already shown weakness recently. On Monday, the market trading volume shrank to NT$50 billion, the lowest since early February, and the stock index dropped below 8000 points. Analysts had been expecting the index to test 7600 points before yesterday's earthquake.

"If the economic damage exceeds the present estimate, it is possible the stock index will be falling to 7200 points before it rebounds," said K.P. Liu (劉凱平), president of SinoPro Securities Investment Consulting (弘利投顧).

However, since Morgan Stanley Capital International has decided to increase the weighting of Taiwan stocks in its stock indexes next March, if stock prices fall in the near term, many foreign investors will be buying at better prices than at present.
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