US President George W. Bush’s plan to rescue the US financial industry will impact on the local bourse this week, with the TAIEX expected to rally if the bill clears the US Congress and restores investor confidence in Wall Street, analysts said yesterday.
The local stock market was closed yesterday because of Typhoon Jangmi.
Shen Chung-hua (沈中華), a finance professor at National Taiwan University, said he believed the US Congress would give a green light to the US$700 billion rescue package intended to ease a growing credit crisis, and the development would have a positive impact on financial markets in Taiwan.
He said the TAIEX was likely to shoot up today after the Bush administration and Congress reached an agreement on the package on Sunday morning. The benchmark index shed 131.2 points, or 2.16 percent on Friday amid concerns the bill had hit a snag as lawmakers from both aisles voiced objections.
The measure, if adopted, could provide relief for cash-strapped banking institutions and calm investors, who have been unsettled by reports of bank failures, Shen said.
The bailout plan still faces stiff resistance from Republican and Democratic lawmakers though the House and Senate were scheduled to vote on the bailout plan yesterday and today respectively.
Yu Jui-ming (余睿明), a manager at Yuanta Investment Trust Co (元大投信), said the bill’s advancement would be interpreted as favorable by local investors in the short term.
Yu said that the stock markets in the US and Taiwan have gained momentum every time the US Federal Reserve or the Department of Commerce adopted a financial stabilization measure in the past, although the rallies did not last long.
In the long run, Yu said the measure would increase the US budget deficit, weaken the greenback and push up inflation.
Investors may again turn to crude oil and other products to hedge profit losses, thereby driving up fuel costs, Yu said.
Dexter Hsu (許世德), an analyst with JP Morgan, echoed the cautious sentiment, saying the bailout plan promised no remedy to the US economic slowdown, which has hurt Taiwan’s exports and financial industry.
Hsu said it would take one to two years for the international credit crisis to heal and the TAIEX would remain volatile before the recovery.
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