Rumors damage bearish market

Yesterday's local stock market was filled with rumors that the National Stabilization Fund (國家安定基金) will not intervene in the market anymore, and investor confidence evaporated. The TAIEX dropped 282 points and closed at 5,454.13 points on turnover of NT$60.6 billion.

When the rumor spread that the fund would step out of the market, local investors had a very negative reaction, market watchers said.

The TAIEX dropped 180 points from the market opening, with the share price of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), United Microelectronics Co (UMC, 聯電) and the three commercial banks falling to their lower-limit minutes after opening. At one point, the index fell over 300 points, but it ended 282 points lower.

Minister of Finance Yen Ching-chang (顏慶章) skirted around questions about the fund withdrawing from the market.

"Investors should look at the performance of listed companies and they should not invest in the market simply based on rumors," Yen said. "The stabilization fund has always been used to stabilize the market."

Analysts said the stock market would consolidate in the near term between 5,000 and 6,000 points.

"The recall motion against President Chen Shui-bian (陳水扁) is not over yet. Gossip about an affair between the president and his aide could further confuse investors. It is unlikely that the TAIEX will perform well in the near term," said Henry Cheng (鄭百亨), managing director of Manulife Fund Direct.

"The TAIEX is unlikely to drop below 5,000 points. When the share prices become cheap enough, buying will pick up," said Cheng.

Foreign and local institutional investors all stood on the sell side yesterday. Foreign investors chose to exit the market, selling a net NT$3.68 billion yesterday. Local fund companies and securities dealers sold a net of NT$0.28 and NT$2.15 billion respectively.

Adding to the bearish speculation, the KMT is rumored to have been dumping shares. At 11am on Wednesday, for example, thousands of lots of selling orders for TSMC and UMC strangely appeared simultaneously.

"It is understandable that the KMT would try to undermine investor confidence right before the recall motion is held in the Legislature," said Liu Kai-pin (劉凱平), president of SinoPro Securities Investment Consulting.

"When the TAIEX dropped close to 5,000 points and the KMT then proposed its recall motion against President Chen, it could be used to create the illusion that the new administration is not competent," Liu said