The death of North Korean leader Kim Jong-il will not have a lasting impact on Taiwan’s economy, although the news exacerbated short-term market volatility, knocking the local bourse below its 10-year moving average yesterday, analysts said.
The TAIEX shed 2.24 percent, or 151.76 points, to end the day on 6,633.33, below the 10-year moving average of about 6,700, a trough it was previously forecast would not be reached until the first quarter of next year when Taiwan’s export-oriented economy is expected to hit bottom in the wake of Christmas demand and the Jan. 14 presidential election.
Kim’s death would inevitably weigh on Asian bourses in the short-term, with more funds likely to pull out of emerging markets, including Taiwan, and take shelter in US dollars, Taiwan Institute of Economic Research (台經院) director Yang Chia-yen (楊家彥) said.
Such moves are unfavorable for equities at home and regionally, but they are no cause for alarm in the long-term, he said.
“At the end of the day, it is economic fundamentals that will set market directions, not the other way around,” Yang told reporters on the sidelines of a seminar on global financial conditions.
Turnover was moderate at NT$62.09 billion (US$2.04 billion) as foreign institutional investors sold a net NT$2.17 billion of local shares, while fund managers and proprietary traders trimmed holdings by NT$717 million and NT$620 million respectively, Taiwan Stock Exchange data showed.
Shares in non-technology sectors bore the brunt of increased unease, with the construction subindex plunging 6.26 percent, while the sub-indices for department stores and financial institutions lost 4.95 percent and 4.44 percent respectively, data showed.
Yang said the government should closely monitor developments on the Korean Peninsula, but intervention on the local bourse would not help much given the bearish sentiment.
“It is better to save funds for a real crash,” the economist said.
Kim’s death drove the South Korean won to its lowest level in more than two months yesterday, a trend that could boost South -Korean exports and weaken orders received by Taiwanese competitors, said Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup Taiwan Inc.
“I’m sure some South Korean firms will benefit from a weaker Korean won if the trend persists,” Cheng said. “Taiwanese exporters, who already lag behind in terms of competitiveness, would be in a more disadvantageous position.”
The New Taiwan dollar remained little changed at NT$30.398 at the close of trade in Taipei yesterday, from NT$30.369 on Friday, statistics on the central bank’s Web site showed.
Cheng said risk aversion would guide more global funds to the US markets next year, despite low yields.
“For this year, investment in US equities might generate modest returns of 1 percent to 2 percent,” Cheng told the financial seminar. “That is not bad considering corrections of 10 percent elsewhere. The tumble is deeper on the local bourse at more than 25 percent.”
As of yesterday, local shares saw their market value plummet by almost NT$6 trillion to NT$18 trillion, JPMorgan Asset Management Taiwan said in a statement.
The global fund manager warned investors to brace for more volatility until concerns over the political uncertainty in North Korean are resolved.