Sun, Jan 22, 2012 - Page 8 News List

EDITORIAL : Do not bet on economic recovery

Despite all the hype about the presidential election, stock investors bid farewell to the Year of the Rabbit with a sigh. The TAIEX ended 0.17 percent higher on Wednesday, the last trading day before the Lunar New Year holiday, with the benchmark index closing the Year of the Rabbit at 7,233.69.

Wednesday’s 0.17 percent rise marked the 14th consecutive year that the local stock market ended higher on the last trading day of the lunar year. However, this year’s increase was the third-worst in 10 years.

In the Year of the Rabbit — which will be remembered for the massive earthquake and tsunami in Japan, the sovereign debt crisis in the eurozone, the serious flooding in Thailand as well as the nation’s presidential and legislative elections — the TAIEX fell 1,911.66 points, or 20.9 percent. In comparison, the TAIEX rose 1,703.51 points, or 22.89 percent, in the previous year, the Year of the Tiger, according to Taiwan Stock Exchange data.

That’s why Wednesday’s closing figure has raised many investors’ expectations for the coming Year of the Dragon, despite uncertain macroeconomic conditions around the world.

Based on historical data for the past 10 years, the stock market has a 70 percent chance of moving up on the first trading session after the Lunar New Year holiday. As a result, experience suggests that the local bourse has a high chance of starting the Year of the Dragon with a rally when the market resumes trading on Jan. 30.

Even so, when investors turn their attention back to the global economy and market fundamentals, they are faced with the same old problems: A fear that Europe is entering a recession because of the sovereign debt crisis, lackluster economic recovery in the US and slowing growth in emerging markets.

The World Bank’s latest Global Economic Prospects report released on Tuesday was both alarming and disappointing, coming on the heels of US rating agency Standard & Poor’s downgrades of nine European nations, including France and Austria’s loss of their “triple-A” status.

In the report, the World Bank slashed its global economic growth forecast for the year and warned that the world could be thrown into a recession as bad as that of 2008-2009, weighed down by a 0.3 percent economic contraction in the 17-nation eurozone.

While the latest US data suggested its economy is recovering, it remains vulnerable. On the other hand, new data from Beijing indicated that China’s economy is showing signs of slowing.

In Taiwan, government data released on Friday told us that export orders fell last month for the first time since October 2009, down 0.72 percent year-on-year to US$36.31 billion, while industrial output was also down last month for the second straight month.

This suggests that the continued eurozone crisis would be a drag on the global economy, while the slowing Chinese economy would definitely add more uncertainties to the global economy in the near term. However, the problem with these worries is that low confidence among consumers might develop into a self-fulfilling prophecy and the whole world could get hurt.

Right after the holiday, the government is set to release more economic data and major technology firms are scheduled to disclose their fourth-quarter earnings, as well as their business guidance for the year, which would shed some light on when Taiwan’s economy might start to bottom out. Until then, the local market will continue to fluctuate.

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