Watching the benchmark TAIEX plunge beneath the key psychological level of 8,000 points last week, investors wondered what had made the local market this year's worst-performing in the region, with the exception of Japan.
This year to date the TAIEX has gained only 0.26 percent while reflecting a 19 percent plunge from a seven-year high of 9,809.88 on Oct. 29. In view of this stunning two-month reversal, people have to ask: Is this just a period of consolidation before shares begin to move back up, or is a bear market taking shape?
The government says the economy remains on track, the unemployment rate is low and exports are strong, so why is investor confidence plummeting?
Despite equity analysts' opinion that the market was close to its bottom and urged investors to get ready for a rebound, why did we still see investors rushing to unload their shares?
The answer is uncertainties. A lot of uncertainties have posed a near-term downside risk to the market and panicked investors.
No wonder that, according to Taiwan Stock Exchange statistics, more than 100 listed companies have announced share buyback programs since the end of October in an effort to bolster stock prices. Managers generally believe their shares are significantly undervalued.
Blame it on the US subprime mortgage problems or the higher oil prices worldwide. Or maybe on listed companies' employee bonus shares, or China's new labor law and tax measures.
Then again, you could simply attribute the market slump to concerns over the verdict in Chinese Nationalist Party (KMT) presidential candidate Ma Ying-jeou's (
The outlook is not clear for the moment given seemingly innumerable factors, but as every crisis offers an opportunity for improvement, a reassessment of all risks would lead to a better and safer approach to future investment.
Following the past two months, the current level of prices actually provides investors who want to hold equities on a long-term basis with a wonderful opportunity to buy stocks in solid companies at great prices.
While some blue-chip companies appear oversold and their prices are at attractive lows, the current market correction also offers investors an opportunity to better scrutinize portfolio targets.
Take the US subprime mortgage crisis as an example. Investors are now demanding greater market transparency of structured financial products. They are also becoming more cautious about the financial investments of banks.
The new labor contract law and the implementation of minimum wages in China, meanwhile, also allow investors to re-examine if the so-called "China play" is worth investing in. Are Taiwanese firms in China allowing more automation and cost-efficient production to minimize the impact, are they financially strong enough to absorb the rising costs, or are they doing nothing but simply considering relocation to other cheap production sites to delay unavoidable squeezed margins?
Compared with investors, equity analysts are generally more optimistic about Taiwan's stock markets, saying shares appear to have much to gain once most of the political uncertainties settle.
But one thing is sure: Gone is the typical year-end window-dressing rally in stock markets. Instead, the markets are likely to continue consolidating before negative local and international factors play themselves out.
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