Taiwan’s benchmark stock index yesterday tumbled 3.35 percent to close below the psychologically significant 7,400 points level, weighed down by weakness in financial and electronics shares as a spike in Italian bond yields triggered new fears that the eurozone’s debt crisis would worsen.
The TAIEX fell 253.18 points to close at 7,308.68, with share prices dropping in line with major Asian markets, following an overnight Wall Street tumble that heightened the bearish sentiment.
“Uncertainty about the debt problem in Italy has a limited impact on the local market, but investors are worried about a global economic storm that could drag down Taiwan’s exports and that led to panic selling of shares,” Ke Meng-cong (柯孟聰), a market analyst and vice president of SinoPac Securities Co (永豐金證券), said by telephone.
Photo: Pichi Chang, Reuters
Taiwan Stock Exchange data showed turnover expanded to NT$109.2 billion (US$3.6 billion) from NT$84.35 billion on Wednesday.
Foreign investors sold a net total of NT$12.72 billion in shares, further dragging down the New Taiwan dollar. The local currency dropped NT$0.196, or 0.65 percent, to close at NT$30.262 against the US dollar yesterday, central bank data showed.
The financial sub-index underperformed the benchmark index by falling 5.1 percent yesterday, as investors worried about the exposure of domestic financial institutions to Italy.
Shares in the nation’s two largest services providers by assets, Cathay Financial Holding Co (國泰金控) and Fubon Financial Holding Co (富邦金控), fell 5.29 percent and 5.66 percent to NT$32.25 and NT$31.65 respectively.
The electronics sub-index dropped 3.16 percent, with many local companies in Apple Inc’s supply chain seeing their shares falling to near the maximum 7 percent daily limit.
Shares in TPK Holding Co (宸鴻), a major supplier of touch modules for Apple products, plummeted 6.98 percent to NT$426.5, while those of Largan Precision Co (大立光), Taiwan’s leading maker of handset lenses and also an Apple products supplier, fell 6.88 percent to NT$596.
Despite Europe’s debt problems, Ke said there was still a chance the TAIEX would rally before the Jan. 14 presidential and legislative elections, with shares in local conglomerates likely to lead the way in response to the government’s bonus policies.
Sunny Chung (鍾兆陽), a fund manager at Allianz Global Investors Taiwan Ltd (德盛安聯證券投信), expects the benchmark index will not fall below 6,877.12, the lowest point for the year set on Sept. 26, this year, in the belief that the eurozone debt crisis will be brought under control.
However, investors should avoid buying financial stocks before the downside risk caused by the European debt problem dissipates, Chung said.
“Financial stocks, especially those in firms focused on life insurance business with a high exposure to overseas investments, are likely to be dumped by foreign investors over the short term,” Chung said in an investment note.
Council for Economic Planning and Development Vice Chairman Hu Chung-ying (胡仲英) said the ongoing debt crisis could keep eurozone economic growth at a low level for the foreseeable future, further raising the short-term risk of stagflation for emerging markets.
However, that would have a limited impact on Taiwan, as the nation’s consumer prices have remained relatively stable this year, Hu added.
Although the European debt crisis could drag down Taiwan’s economy through exports, a weak financial system and waning confidence, Hu said investors should not be too worried, as another global recession was unlikely.
“As the US has reduced its holding of debt issued by PIIGS [Portugal, Ireland, Italy, Greece and Spain], it will not face another economic crisis in the near future and so there is no global financial tsunami lying in wait,” Hu told reporters.
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