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Stocks continue to plumb new lows

"The next [support] level that might lead to a rebound is 4,800 points."

Henry Cheng, managing director of Manulife Fund Direct

The nation's main stock index plumbed new lows yesterday as margin calls and overnight losses on Wall Street led investors to dump shares.

The TAIEX fell 6.46 percent yesterday, or 350.95 points, finishing the day at 5,081.28 -- its lowest level since March 28, 1996.

In all, 444 stocks fell -- an ominous number, according to Chinese tradition -- and just five rose. Turnover was a paltry NT$37.4 billion.

In reaction to the downturn, finance officials enacted six measures to address the situation. One of two key changes included halving the daily downward volatility limit on stock movements from 7 percent to 3.5 percent. Officials didn't say how long the limitation would remain in place.

In addition, the Ministry of Finance proposed allowing foreign institutional investors to buy up to 75 percent of the shares of a single listed company, up from the current 50 percent limit.

Also, foreign investors would be permitted to invest as much as US$1.5 billion in Taiwan equities, up from the present US$1.2 billion cap.

Analysts say losses in New York prompted Taiwanese investors to unload shares. The tech-heavy NASDAQ Index lost 1.32 percent on Wednesday, and is down 38.2 percent off its high for the year. In addition, the Dow Jones Industrial Average declined 1.14 percent to close below the psychologically important 10,000 level.

Local investors often take their cue from US markets, as the fortunes of many Taiwanese high-tech companies are tied to their counterparts in the US.

Also putting downward pressure on shares were margin calls, whereby investors are forced to sell shares in order to pay back loans that had been used earlier to purchase stocks.

As of Wednesday, NT$308 billion in stocks held were purchased on credit, down from NT$334.2 billion at the start of the week.

Market watchers say the TAIEX is likely to drop below 5,000 points in the near term, possibly testing the 4,800 resistance level.

"After the 5,200-point support level failed to halt the TAIEX decline, it is likely that the market will fall below 5,000 points," said Henry Cheng (鄭百亨), managing director of Manulife Fund Direct. "The next [support] level that might lead to a rebound is 4,800 points."

Chen said that worldwide bearish sentiment and political problems on the domestic front have eroded investor confidence.

"The market's bottom is hard to predict," Cheng said. "Most securities analysts predict that the Taiwan stock market is going to test new lows in the near-term and consolidate in the next few months before rebounding."

Analysts say there was no evidence of buying from the government's NT$500 billion National Stabilization Fund (國安基金) yesterday.

A scheduled meeting between Minister of Finance Yen Ching-chang (顏慶章) and the Legislative Yuan's Finance Committee was cancelled yesterday, reportedly so Yen could be free to concentrate on the stock market's performance and the government's intervention efforts.

But Yen said he had already passed the reins of the stabilization fund over to Lin Tzong-yeong (林宗勇), the administrative vice finance minister and former chairman of the Securities and Futures Commission (證期會).

The position "has been taken over by Vice Minister of Finance Lin," Yen said. "Intervention in the stock market by the stabilization fund will be Lin's responsibility from now on."

As former administrative vice finance minister, Lin was the executive secretary of the stabilization fund until Wednesday.

Vice Premier Lai In-jaw (賴英照), who also heads the Cabinet's economic task force, had little comment on the market's 6.46 percent decline yesterday, saying "the stabilization fund will do its best to maintain stability in the stock market."

Lai declined to explain what specific measures the stabilization fund would take.
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