TAIEX may slip to 4,000 if war starts

The Taiwan Stock Exchange (TAIEX) is expected to continue its downward slide until uncertainty surrounding US-led plans to attack Iraq becomes clear.

"Downward movement of the TAIEX may not hit bottom until the moment the US president decides to go to war," said George Wu (吳裕良), an analyst with Primasia Securities Co.

The local stock market is expected to bounce back once such uncertainty is removed, he added.

Investors in share markets around the world are putting stock purchases on hold as the US makes its final diplomatic push to win UN Security Council members support for a resolution setting a March 17 deadline for Iraq to destroy all weapons of mass destruction, or face war.

Wu said that the potential for war in Iraq is having greater psychological impact on investor confidence than any actual concrete damage to the nation's economy.

Taking advantage of market fluctuations, Wu said that foreign investors yesterday snapped up over NT$700 million in shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's biggest made-to-order chipmaker, and Asustek Computer Inc (華碩電腦), the nation's biggest maker of boards that connect chips in personal computers.

The bourse closed down 30.60 points to close at 4,319 on turnover of NT$31.66 billion.

Industry watchers SinoPac securities (建華證券) forecast in a statement the market was sliding towards 4,100 points yesterday on war jitters and reports that North Korea test-fired a cruise missile into the Sea of Japan yesterday.

Primasia's Wu estimated that the TAIEX would hover between 4,250 and 4,000 points should a quick war take place in Iraq.

Minister of Finance Lin Chuan (林全) told the legislature's finance committee yesterday that the government may activate the National Stabilization Fund (國安基金) to prop up the TAIEX, because of non-economic factors.

"An irrational decline on the TAIEX because of a war would constitute one of the preconditions for the fund to enter the market," Lin said yesterday.

The final decision to intervene would be made by the fund's oversight committee, he said.

Keeping close tabs on fluctuations in local markets, Lin added that his ministry has been working with the Executive Yuan to come up with plans to prevent possible market manipulation during the war.

The minister added that the impact of a quick battle would be minimal, however, if the war is protracted, importers and exporters would suffer the most.

Fears of potential rising crude oil and other raw-material prices prompted the minister to urge local banks to make sure that they are providing sufficient financial assistance to businesses.

Domestic banks, nevertheless, may still tighten up credit by asking businesses to secure bank loans based on solid orders to avoid possible risks during a war in the Middle East, Cheng Chen-mount (鄭貞茂), an economist at Citibank NA (花旗銀行) said yesterday.

Cheng, however, added that a serious credit crunch is not likely to occur since Taiwan is on the sidelines of the US-Iraq war and its exports are not economically dependent on the Middle East.

The biggest fallout from war rumors is the "wait-and-see" attitude taken by most investors, Cheng added.

Sharing a similar view, Primasia's Wu, moreover, said that the price of crude oil is unlikely to surge over US$40 per barrel during the war and should quickly drop if the war ends within a month.

"The crude oil price may eventually level out to US$30 per barrel in the next two years," Wu said.