Given widespread bearishness about the strength of the US economy and emerging markets, the TAIEX is unlikely to escape a fall today when the stock market reopens after the eight-day Lunar New Year holidays.
Asian markets yesterday plunged again with Japan’s Nikkei 225 Stock Average sinking the deepest, by 4.18 percent, as almost all stocks on the measure dropped. Hong Kong’s Hang Seng Index fell 2.89 percent. South Korea’s KOSPI declined 1.72 percent. Singapore’s Straits Times Index dropped 0.8 percent. China’s stock markets were closed for the holidays.
The broad sell-off in Asian markets came as investors primarily took cues from declines on Wall Street — the Dow Jones Industrial Average tumbled 2.08 percent, while the NASDAQ Composite and S&P 500 slumped 2.61 percent and 2.28 percent respectively overnight after US manufacturing sector growth unexpectedly decelerated this month.
The weak sentiment is likely to dampen local investor confidence as Taiwan’s stock market is closely linked to Asian and global markets, and there are no bullish factors to boost the local exchange. On the last trading day before the holidays, the TAIEX fell 1.58 percent to 8,462.57 points, hitting its lowest level in about a month.
Additionally, American depositary receipts (ADR) of Taiwan’s six major companies traded in the US have plunged between 1.67 percent and 5.15 percent over the past week. That will further weigh on the local stock market. ADRs of LCD panel maker AU Optronics Corp took a nosedive, down 5.15 percent, while ADRs of Taiwan Semiconductor Manufacturing Co (TSMC), the world’s biggest contract chipmaker, plunged 3.7 percent. TSMC is the most valuable company listed on TAIEX, accounting for nearly 12 percent of its market value.
A brief decline is inevitable, but no panic sell-off is likely to be seen as the stock market is recovering amid new trading rules and a reviving local economy.
The nation’s GDP grew a faster-than-expected 2.19 percent last year and some economists expect the pace to continue to accelerate this year to 3.11 percent, as the Taiwan Institute of Economic Research forecast. Hong Kong brokerage CLSA even expects Taiwan’s economy to grow 5.7 percent.
Furthermore, Taiwan will suffer less from the impact of the US’ tapering of its stimulus measures than most Asian economies, given the country’s healthy current account.
On top of that, the Financial Supervisory Commission launched a series of trading rules to boost trading volume, including allowing investors to buy and sell a selected 200 stocks on the same trading day. The effect is likely to magnify. Over the past month, turnover has rebounded to above NT$90 billion (US$2.97 billion), approaching the healthy level of NT$100 billion.
Last year, the TAIEX was a laggard compared with its regional peers. However, this year, a lot of foreign brokerages have expressed greater confidence about the local stock market and raised their forecast for the index as overseas demand from the US and Europe for locally made electronics picks up. Most brokerages expected the TAIEX to approach 9,000 points, implying at least a 6 percent rise from the last trading day.
Brokerages expect that a solid improvement in fundamentals will support local stocks in fending off unfavorable global factors. Demand for chips, electronic components, machine tools and even hardware devices is likely to increase later this year, benefiting from a noticeable economic recovery in the US and Europe.