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TAIEX nosedives to five-month low

“The way the global market is going down, it is likely to drag the Taiwanese market along with it.”

Lim Say Boon, Standard Chartered chief investment strategist

Taiwan’s stocks plummeted yesterday to a five-month low following a 3 percent plunge on Wall Street overnight and a more than 2 percent decline in most Asian markets amid rising concerns about inflation and commodity prices.

The slide in the benchmark TAIEX also came one day after the nation’s central bank announced it would raise its key interest rates by 0.125 percentage points, effective yesterday, and increase the reserve ratios for domestic banks from Monday to fight inflation and rein in excess liquidity.

The TAIEX dropped 263.04 points, or 3.37 percent, to close at 7,548.76 — its lowest since Jan. 31.

Elsewhere in Asia, Shanghai’s benchmark index plunged 5.3 percent to a 16-month low and India’s SENSEX fell 4.3 percent to a 13-month low. Japanese stocks dropped for the seventh consecutive day to a two-month low, while markets in Hong Kong, South Korea, New Zealand and the Philippines fell around 2 percent.

“The way the global market is going down, it is likely to drag the Taiwanese market along with it. That’s the threat of financial contagion,” Lim Say Boon (林哲文), chief investment strategist of Standard Chartered Bank’s wealth management group, told a media briefing in Taipei yesterday.

The TAIEX is likely to see another nosedive “very soon,” challenging its 200-day moving average of 7,200 points, Lim said, adding that it would likely “bounce back.”

Investors may “be tempted to bargain hunt” for emerging real value, although the TAIEX will remain volatile as global stock markets fluctuate, he said.

Worries about inflation intensified after crude oil prices surged above US$141 for the first time in Asian trading yesterday.

But Lim said that, compared with its Asian peers, the nation was doing a good job of keeping inflation under 4 percent.

Standard Chartered forecast inflation of 23 percent in Vietnam this year, 11 percent in Indonesia, between 6 percent and 7 percent in China and Singapore and 8 percent to 9 percent in India.

Sentiment may become more bearish as the US credit crisis is expected to continue, Lim said.

“This is by no means over,” he said, adding that another US$55 billion credit loss would probably surface, citing the IMF’s estimate that the total US write-down in the crisis would be US$945 billion.

Standard Chartered forecast that the US economy would see just 1.2 percent growth this year, which will have a ripple effect in Asia.

Lim suggested that investors diversify their portfolios to hedge risks by buying gold, commodities and oil-related financial products.

Additional reporting by AFP

Also see: Geopolitical unrest, weak dollar drive oil prices to record

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