Share prices closed 0.40 percent lower yesterday after Taiwan severed diplomatic relations with Chad as that country decided to switch diplomatic ties to China, dealers said.
Caution ahead of the US Federal Reserve's decision later this week on interest rates also dampened buying sentiment, they said.
The tourism sector was most affected by the news about Chad's move, triggering concerns over its impact on any initiative to relax cross-strait economic and business relations, dealers added.
The weighted index closed down 26 points at 6,416.61, off a low of 6,405.09 and a high of 6,450.06, on turnover of NT$56.12 billion (US$1.71 billion).
"These leads were not much of a surprise but investors still responded negatively, given the fact that sentiment was already cautious due to economic and industrial concerns," First Taisec Securities Inc (
The severance of Taiwan-Chad did not really jolt the market, but it triggered concerns that developments such as this, coming at a time when investors had been eagerly anticipating news of a relaxation of the policy towards China, would, instead, lead to a turn for the worse rather than better relations with Beijing.
It gives no reason for investors to return to the market, but drives them further into the sidelines where they had opted to stay to wait for an easing in oil prices and the Middle East conflict, Hsu said.
Industries such as the auto sector, which had entered a sluggish season, took a hit from lingering concerns over the impact of inflation on consumption going forward, he added.