The TAIEX tumbled 3.82 percent, or 300.33 points, to close at 7,552.80 yesterday, as investors sold off shares reflecting their concerns about the US’ economic outlook after Standard & Poor’s (S&P) cut its credit rating on Friday.
That dragged down the benchmark index, which has fallen 13.2 percent, or 1,148.58 points, in the past six days of trading, Taiwan Stock Exchange data showed.
Trading was heavy with turnover hitting NT$168.32 billion (US$5.8 billion) amid investors’ panic selling, with foreign investors’ net sales totaling NT$31.51 billion, stock exchange data showed.
Stock futures also plummeted more than 500 points to 7,260 yesterday, before rallying late in the session to close down 211 points at 7,555, data showed.
“The volatility of Asian stock markets reflected the region’s shock at S&P cutting the US’ debt rating for the first time in history,” Council for the Economic Planning and Development Minister Christina Liu (劉憶如) said.
However, Liu also said that the market trough in Asia might be temporary, as S&P’s cut did not indicate any changes in the US’ economic fundamentals.
“There is no reason for Asian stock markets, including Taiwan’s, to tumble this much, as S&P has been warning it could cut the US’ rating since April, and the massive fiscal deficit and debt load have been a major problem in the US for a long time,” Liu said.
Liu was optimistic that the world could help the US maintain the stable interest rate and the US dollar, as there are too many countries holding a large amount of US debt securities and US dollars.
In light of the market volatility, Premier Wu Den-yih (吳敦義) said the activation of the government’s National Stabilization Fund (NSF) to prop up the market would depend on the professional judgement of financial authorities.
The government has established a standard protocol for the fund and it would be activated at an appropriate moment if necessary, Wu said.
The Financial Supervisory Commission (FSC) urged investors to “remain rational” as the nation’s economic fundamentals are “good,” it said in a statement.
The FSC would continue monitoring international financial developments closely as well as local stock and futures markets, the statement said.
In addition, the commission -denied media reports that it plans to halve the market’s daily trading limit on stocks to help stabilize the local bourse.
“The commission has no intention to cut the daily limit or take other measures to steady the equity market,” FSC Secretary--General Lin Tung-liang (林棟樑) said in a telephone interview.
Lin said that weak sentiment accounted for the tumble and that does not warrant action.
James Yeh (葉鴻儒), an analyst at JPMorgan Asset Management (摩根富林明投信), said that despite the recent market plunge, the TAIEX still has upside potential from an -anticipated pre-election market rally once investors can fully digest the recent negative news from the US and the eurozone.
Nonetheless, Peter Kurz, head of Taiwanese equity research at Citigroup Global Markets Inc, said there might be only a muted pre-election rally given the close race between the candidates.
Kurz said in a report yesterday that the Citigroup research team has lowered its year-end forecast for the TAIEX to 8,770 points, from the 10,000 points previously set.
Additional reporting by Crystal Hsu and CNA