Shares in Taiwan trended lower yesterday to end below the 7,900-point mark for the first time since April 18 on heavy institutional selling after the US Federal Reserve hinted that its massive bond-buying program could be phased out later this year, hammering markets across Asia and Europe.
Investor confidence was further dampened by a fall in China’s Purchasing Managers’ Index (PMI) this month to a nine-month low as an increasing number of investors were worried about the pace of China’s economic recovery.
The TAIEX closed down 108.48 points, or 1.35 percent, at 7,898.91, on turnover of NT$79.51 billion (US$2.65 billion). The New Taiwan dollar fell NT$0.2 to close at the day’s low of NT$30.16 against the US dollar.
The initial catalyst for the carnage was US Federal Reserve Chairman Ben Bernanke, who pulled few punches when signaling a likely end to asset buying by the middle of next year.
“After Bernanke’s remarks, concerns have been running deeper that foreign institutional investors will move their funds out of the region to cut liquidity, a development that is the last thing the equity markets want to see,” Concord Securities (康和證券) analyst Kerry Huang said.
“The gloomy PMI showed that China’s economic recovery appeared unsteady,” Huang said. “I am also worried about a credit crunch [in China] that could have even greater impact on the world’s second-largest economy.”
Other Asian markets buckled badly. Shares, currencies and commodities all crumbled as spooked investors rushed to unwind crowded trades in emerging markets. Central banks across the region were busy intervening trying to put out spot fires, but with only limited success.
Among a host of unwanted milestones: Asian stocks outside Japan suffered their biggest daily loss since late 2011, key lending rates in China reached historic highs and India’s currency carved out a record low.
“Kaboom is a better word to describe the market,” was the judgement of a trader at an overseas bank in Manila.
MSCI’s broadest index of Asia-Pacific shares outside Japan sank 3.5 percent, its biggest one-day percentage drop since November 2011.
Australia’s bourse lost 2.1 percent, while South Korean shares shed 2 percent to seven-month lows. Stocks in Hong Kong were down 2.7 percent while Shanghai closed 2.8 percent lower. Japan’s Nikkei stock average was off 1.7 percent, a relatively modest move given its recent wild swings.
The stress was clear in Asian credit markets, where the spread on the iTraxx Asia ex-Japan investment-grade index widened 23 basis points, reflecting the rising cost of hedging against debt default.
Bernanke’s remarks sent 10-year US Treasury yields spiraling to a 15-month peak of 2.38 percent, squeezing investors who had borrowed in US dollars to invest in emerging markets.
The US dollar was already up at ￥97.23 for a gain of 2 percent in as many sessions.
European shares also fell yesterday, with mining and luxury stocks among the top fallers.
The pan-European FTSEurofirst 300 index was down by 2.2 percent at 1,154.96 points in mid-session trading, close to a low of 1,151.10 points reached in late April.
The eurozone’s Euro STOXX 50 index also fell 2.6 percent to 2,614.99 points, dropping below its 200-day simple moving average level of 2,633 points to send a negative signal to technical traders.