Mon, Dec 02, 2019 page6

• EDITORIAL: Dangers to the economy remain

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  While the US-China trade dispute has led to a reshuffling of the global supply chain and benefited some local companies, other firms have been hit by the slowing global economy and trade.

  The aggregate pretax income of companies listed on the Taiwan Stock Exchange or Taipei Exchange in the first three quarters of this year fell 16.73 percent annually to NT$1.64 trillion (US$53.7 billion), the latest Financial Supervisory Commission figures show. The firms whose shares are traded on the Taiwan Stock Exchange saw their aggregate pretax income drop 19 percent to NT$1.44 trillion from a year earlier, the largest decline since the same period in 2012.

  The commission last week said that the decline was due to a high comparison base last year, when listed companies reported record pretax earnings.

  It said that some local companies have benefited from order transfers by customers trying to avoid the trade row, but that others have suffered from global macroeconomic uncertainty and falling product prices and capacity utilization. Firms operating in the plastics, semiconductor, and oil and gas industries have been hit the hardest, it added.

  The earnings results bring up the question of whether the nation’s economic fundamentals are as good as they look, even though Taiwanese stocks have reached new highs in the past few months.

  While massive foreign fund inflows have driven solid gains on the local bourse this year, foreign investors have mainly focused on a few select tech companies, led by Taiwan Semiconductor Manufacturing Co, and the rally has not spread across the board.

  Meanwhile, market observers fear that a disconnect between the stock market and the real economy might be emerging in Taiwan, as has happened in many other economies.

  A stock market generally tends to reflect the fundamental conditions of an economy: a booming market indicates that investors are chasing shares of companies that might offer larger dividends, as well as those that have a higher profit outlook amid a growing economy.

  While the trade dispute has cooled the global economy and led to worries about economic performance, this year is likely to be the brightest for global equities in many years, as only three markets have declined this year to date: the Shanghai B-share, the Malaysian and the Indonesian markets.

  On the other hand, the Directorate-General of Budget, Accounting and Statistics (DGBAS) on Friday last week raised its forecast for the nation’s GDP growth to 2.64 percent for this year and 2.72 percent for next year, compared with 2.46 percent and 2.58 percent it forecast in August. The upward revision was caused by investment flows amid the trade dispute.

  However, the DGBAS’ forecasts are much more optimistic than those of local and foreign research institutes, which remain cautious about potential risks for the global economy.

  Moreover, export orders for October contracted for a 12th straight month, slipping 3.5 percent annually, and the local manufacturing sector’s output last quarter fell 7.01 percent annually for a third straight quarter, Ministry of Economic Affairs data show.

  From the perspective of import and export figures, as well as corporate earnings results, the fundamental risks to Taiwan’s economy still deserve the government’s attention.

  Unless the US and China reach a trade deal next year and Taiwan’s exports recover strongly, it will not be easy for the economy to grow faster this year based on investment alone.
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