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TAIEX plunges as overseas investors panic over China

Following a strong sell-off from overseas investors, triggered by concern over China's plans to cool its economy -- which in turn may have an impact on Taiwan's exports -- the TAIEX fell sharply for the fifth consecutive day yesterday.

Amid pessimism about the market, the TAIEX slid as much as 379 points, or 5.9 percent, to 6,023.58 points in morning trading before rebounding slightly to close at 6,117.81, down 284 points, or 4.44 percent.

The turnover was NT$161.5 billion, compared with NT$130.9 billion the previous day. Decliners outranked gainers 866 to 62, with 37 unchanged.

Chinese Premier Wen Jiabao (溫家寶) told reporters on Thursday that Beijing may "take effective and very forceful measures" to rein in China's runaway economy, sparking a sell-off across the region and dampening sentiment in global markets.

Investors, especially those overseas, have irrationally panicked over China's plan to stifle its over-heated investment boom, analysts said yesterday.

"The benchmark index shouldn't have seen such a negative reaction, since China has obviously adopted soft-landing economic measures, which can only postpone demand," said Wang Chi-li (王兆立), an analyst at Polaris Securities Group (寶來證券).

The US' economic prospects aren't bright enough to help bolster the TAIEX, with higher-than-expected inflation pressure looming to make possible an increase in interest rates, according to Alvin Teng, (鄧可欣) an analyst with SinoPac Securities Corp (建華證券).

Overseas investors yesterday hurried to leave the market by selling a record net NT$23.7 billion-worth of shares. On the local bourse, transport and construction-material stocks were the weakest performers.

"Foreign investors haven't really picked up confidence in the TAIEX since the presidential election and are maintaining a wait-and-see attitude," Teng said.

The TAIEX plunged 9.3 percent, or 630 points, as foreign investors sold a net NT$37.7 billion this week, according to the Taiwan Stock Exchange.

Both Teng and Wang said that the nation's economic fundamentals are improving strongly enough to bolster the local bourse. They are also optimistic about the possibility that Taiwan's weighting in the MSCI indices will rise.

"Morgan Stanley Capital International Inc is close to re-weighting and upgrading Taiwan to a developed market," which will generate more foreign capital flow into the market, they said.

Premier Yu Shyi-kun also attempted to ease investor panic, saying that yesterday's decline was only "a short-term shock."

But Morgan Stanley's Hong Kong-based chief economist, Andy Xie (謝國忠) didn't think so.

Xie told the Chinese-language media that both stock and foreign-exchange currency markets in Asia "will be finished soon if China's economic growth is cut by half."

Xie said that Asian economies including Taiwan, South Korea and Hong Kong, which depend on China's economy, will be negatively impacted within the next two quarters.

But both Wang and Teng disagreed, saying "there's no need to be so pessimistic."

The index may slightly rebound next Monday, Teng said.

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