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Political woes punishing TAIEX

The local bourse's benchmark index plummeted yesterday, experiencing its steepest dive in two years, as the intensifying political turbulence caused a significant drop in investors' confidence.

The TAIEX yesterday shed 244.37 points, or 3.51 percent, to close at 6715.27 on turnover of NT$100.35 billion (US$3.13 billion), the largest drop since a 5.1 percent in May 2004.

Selling pressure came from local institutional investors who sold a net of NT$2.89 billion, while foreign investors appeared more confident in the market with net purchases of NT$3.66 billion.

"Political risk denting investor confidence is the major reason [for the plunge]," Jesse Wang (王嘉樞), head of equity research at BNP Paribas Securities (Taiwan) Co, said in a phone interview yesterday.

Confrontation between the ruling and opposition parties is expected to drag on, given the thresholds for recalling President Chen Shui-bian (陳水扁) and dissolving the Cabinet are too high to make the plans become a reality, Wang said.

Likening the situation to riding a roller coaster in a dark cave, Wang said that it was too early to predict how long the uncertainty would continue.

The analyst suggested investors adopt a "wait and see" strategy for the moment until visibility of the market outlook becomes clearer.

BNP Paribas gave an overweight rating to Taiwan's market and forecasted last month that the benchmark index would hit 10,000 points by the end of next year over expectations for further liberalization of cross-strait relations.

The French securities house said it has no plans to downgrade the rating in the near future.

The free fall in the TAIEX ended the bull market last week backed by the government's announcement of its intention to open up Taiwan to Chinese tourists in October, after thousands of protesters took to the street last weekend and called for Chen's resignation amid the weeks of probes into snowballing corruption allegations against his son-in-law Chao Chien-ming (趙建銘).

Another analyst appeared to be more optimistic, saying that the jitters would fade and a rebound was not far away.

Investors have overreacted to the political noise, which in turn led to an unusually steep drop yesterday, said George Hou (侯明甫), chief investment officer at JF Asset Management (Taiwan) Ltd.

Het expected the market to have support at 6,500 points and said it may rebound to about 6,900 points over the course of this week.

Investors can divert their money from the once hot property stocks, which could cool down as political turmoil could overshadow cross-strait relaxation prospects, and focus on big name and quality stocks in upstream high-tech sectors like foundries and chip testing and packaging players, Hou said.
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