Fri, Jun 09, 2006 - Page 12 News List

Global jitters send TAIEX slumping

UNCERTAINTIES Markets across Asia dropped significantly, with the local benchmark index falling 4.3 percent owing to global monetary and domestic political concerns

By Amber Chung  /  STAFF REPORTER

Shares tumbled yesterday for the second time this week, marking the largest drop in two years, as Asian markets weakened on concerns over tightening monetary policies worldwide and domestic political upheavals over the opposition parties' determination to recall President Chen Shui-bian (陳水扁).

The TAIEX shed 280.93 points, or 4.25 percent, to 6,331.81 on turnover of NT$119.25 billion (US$3.67 billion). Yesterday's fall marked the largest drop since a 5.1 percent fall on May 17, 2004. The benchmark index also plunged 244.37 points, or 3.51 percent, on Monday.

Selling pressure came from foreign investors, whose net sales yesterday reached NT$12.14 billion, accounting for the bulk of net sales amounting toNT$24.3 billion over the four trading days this week.

Across Asia, markets dropped significantly, led by Japan, where the NIKKEI 225 index fell 462.98 points, or 3.1 percent, to 14,633.03, the largest fall since April 18 last year. South Korea's KOSPI index also slumped 3.5 percent to a new low in seven months following the central bank's surprise move to raise the benchmark interest rate by a quarter percentage point to a three-year high of 4.25 percent yesterday.

"The likelihood of a tighter global monetary policy to combat the looming inflationary threat is the reason behind the bearishness in global markets, while domestically, the market suffered from the political turmoil arising from the recall proposal," Alex Huang (黃國維), an assistant vice president of research at Barits International Securities Co (倍利國際證券), said in a phone interview yesterday.

The European central bank yesterday approved a quarter percentage point interest rate hike to 2.75 percent yesterday. This follows the Thai and Turkish monetary authorities' move to lift their interest rates on Wednesday.

In the US, Federal Reserve Chairman Ben Bernanke said earlier this week that inflation had risen to an unwelcome level as energy price hikes seemed to have spread to consumer prices, which sparked speculation over the possibility of another interest rate hike -- for the 17th straight time -- at the end of this month.

"Global rates hikes pose a risk to Taiwan's market in the future," said Jonathan Lee (李信佳), a senior director at Fitch Ratings' Taiwan branch.

Foreign funds could flow out of the emerging markets, once the US, European and Japanese policymakers decide to lift interest rates, Lee said.

Overseas investors wired US$77 million out of Taiwan last month, ending a net inbound fund flow over six successive months since November last year, according to the figures released by the Securities and Futures Bureau yesterday.

However, the TAIEX could rebound next week, as the benchmark index has lost over 1,000 points from a five-year high at 7,474.05 on May 8, Huang said.

Huang added that the TAIEX could fluctuate between 6,100 points and 6,500 points before those uncertainties fade away at the end of this month, when there is a clearer indication of the US' monetary policy and a resolution to the proposed recall motion in the legislature, Huang said.

The local bourse could then experience a bull run over the next two months with the benchmark index likely to hit 7,000 points in the wake of the large correction and as the electronics sector enters its high season, the analyst added.

Meanwhile, Morgan Stanley said that the political-driven, near-term correction had provided a good entry point.

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