The 43.4 percent surge in Taiwan’s benchmark stock index so far this year seems to suggest that investors are more willing to try their luck in the equity market as they believe the recession is coming to an end.
Based on technical indicators, local shares hit a fresh eight-month high on Friday after surging past a critical 10-year moving average earlier last week, reflecting continued optimism and upside momentum.
However, this positive sentiment is now being tested as the latest foreign trade figures seem to belie hopes for a strong recovery.
On Thursday, the Ministry of Finance reported that, following two straight months of sequential increases in February and March, exports resumed their downward trend last month, falling 4.8 percent from March to US$14.85 billion. On a yearly comparison basis, exports were down for the eighth consecutive month, plunging 34.3 percent after March’s 35.7 percent decline.
Even though outbound shipments to China last month improved because of a wave of rush orders, caution is in order as demand from Taiwan’s other major markets — the US, Japan and Europe — failed to show clear signs of a recovery.
Plummeting imports of capital equipment — down 51.2 percent year-on-year last month — are also a source of concern, because they are indicative of weak domestic investment. Despite the recent influx of capital from foreign investors and Taiwanese businesses overseas, companies remain cautious about business prospects and wary of investing in new equipment, including plants and machinery, which are needed to support an economic recovery.
The index’s sharp rise has further raised fears of resurgent money games, with funds flowing into domestic equities and being sucked out of real economic production.
It is undeniable that a recent string of positive data shows improvements in the domestic economy, including falling initial claims for unemployment benefits, fewer companies enforcing unpaid leave, a smaller drop in export orders and stabilizing inflation. But it is equally undeniable that last month’s external trade data is challenging the prevailing bullish mood, while bringing up the question of whether the stock market may be overheating.
While the economy has shown green shoots of recovery, the fact is it is still far below what it was a year ago, when the global downturn cut into demand for exports that the nation is so dependent on.
A stock market rally may be viewed as an indicator of rising confidence, but it would be a mere bubble if it were not accompanied by improvements in corporate and economic fundamentals. Market optimism stemming in part from expectations of Chinese funds — specifically, Chinese qualified domestic institutional investor, or QDII, funds — would seem to be exaggerated at the moment.
Clearly, Taiwan is facing a double crisis as it has become overly reliant not only on exports but also on China — money, tourism and cross-strait politics.
If the government’s economic policies only succeeded in opening up Taiwan’s market to China — rather than improving the domestic investment environment to attract investors from different parts of the world — and failed to restructure the nation’s export-dependent economy, then we should be worried about our future in the long run.
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