Concerns that capital gains taxes will be assessed on stock investments sent Taiwan’s stock market into a tailspin yesterday and pushed the benchmark index below the 7,800-point mark by the end of the trading session, dealers said.
Market sentiment was also dampened by 10 percent hikes in domestic fuel prices that took effect on Monday, with many investors fearing the higher fuel costs would hurt the economy, they said.
The TAIEX has fallen 3.5 percent in the past four trading days since the issue of a possible capital gains tax emerged, making the benchmark gauge the worst performer in Asia in that period. The index closed down 102.05 points, or 1.30 percent, at 7,760.85 yesterday, the lowest close since Feb. 7. It gained 9.7 percent this year.
“Look at the expanded turnover. Selling was heavy and that dragged the index below 7,800 points,” Mega Securities analyst Alex Huang said. “The market has become technically unstable and weak.”
Fears rose after Minister of Finance Christina Liu (劉憶如) pledged on Monday at a Legislative Yuan hearing to send a capital gains tax proposal within one month to the Executive Yuan for approval.
Taiwan Stock Exchange chairman Schive Chi (薛琦) said in an interview in Boao, China, yesterday that there was a “99 percent” chance Taiwan would impose a capital gains tax on share transactions.
“It is very likely that the government will impose a capital gains tax eventually. But how the tax will be collected has become a major concern to many investors, in particular to institutional investors who hold massive portfolios,” Huang said. “Such uncertainty has hurt market confidence a lot and prompted many investors to cut their holdings now to avoid further losses caused by the tax.”
In addition, fuel price hikes and an expected increase in electricity rates are expected to adversely affect the economy, in particular in the second half of this year, Huang said.
“Investors should keep a close eye on the world’s economic fundamentals, which will serve as one of the key factors behind the local economy’s performance in the future,” he said.
By the end of the session, the construction sector had suffered the heaviest losses of any of the market’s eight largest sectors, finishing down 2.5 percent. Machinery and electronics shares, and paper and pulp stocks fell 1.7 percent, while textiles shed 1.5 percent.
Financial stocks fell 0.8 percent, food stocks shed 0.7 percent, plastics and chemical shares lost 0.6 percent and the cement sector closed down 0.1 percent.
Additional reporting by Bloomberg