The local bourse saw its third-largest plunge in two years yesterday, driven by weakening global markets on concern over tightening monetary policy and domestic jitters about the escalating political conflict.
The TAIEX shed 219.49 points, or 3.33 percent, to 6,363.55 on turnover of NT$96.49 billion (US$2.96 billion) yesterday, the third steepest dive since a 5.1 percent in May 2004. The nation's market experienced all of its top three biggest drops this month.
Foreign and local institutional investors collectively offloaded NT$11.948 billion worth of shares yesterday. Overseas investors have sold a net of NT$65.57 billion this month.
The nation's market posted the sharpest fall yesterday compared to its neighbors, with South Korea's sliding 2 percent and Japan dropping 1.4 percent.
"The sentiment of local investors is weak ... and we think the market has overreacted," Ken Chen (陳安), managing director of UBS Securities Ltd's Taiwan Branch, told a media briefing yesterday.
Foreign investors are more concerned about the potential rise in US interest rates and a possible macroeconomic slowdown than local political dis-putes, Chen said at a two-day forum dubbed the "UBS Taiwan Conference."
More than 70 Taiwanese companies joined the conference, including 10 of the nation's 14 financial holding firms including Cathay Financial Holding Co (國泰金控), high-tech companies such as Taiwan Semiconductor Manufacturing Corp (台積電) and Acer Inc, traditional manufacturing firms like Uni-President Enterprises Corp (統一企業) and China Steel Corp (中鋼) and services industry companies like Formosa International Hotels Corp (晶華酒店).
Looking ahead, the TAIEX is expected to remain in a period of consolidation for the next two months with a support point at about 6,000, said Chen, who retained his forecast of a peak at 8,700 points in the next 12 months.
Yet, the industry outlook and conservative guidance from companies at the forum to some extent worried investors, who are especially concerned about inventory pileups in the high-tech sector due to a weakening global economy that could weaken demand for such products, Chen said.
Liquidity is another issue, as foreign investors have been pulling funds out of the relatively volatile emerging markets in the region recently, he added.
However, the analysts declined to comment on whether or when they may revise earnings forecasts and the rating of the Taiwan market.
Meanwhile, Morgan Stanley's chief Asian economist Andy Xie (謝國忠) said in his latest report released yesterday that a bear market is coming, driven by tightening monetary policy and looming inflation worldwide.
Interest rate hikes and inflation that constrains liquidity would remain the major risks to the global markets in the next two years, especially due to expectations of higher oil prices and rising manufacturing costs in China, Xie warned in the report.
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