Weak investor confidence in the government's new economic package announced Saturday was reflected in yesterday's dismal stock market performance.
In addition, China's doom-and-gloom assessment of ties with Taiwan in a military defense paper released yesterday also weighed on sentiment.
The TAIEX opened up 285 points yesterday, but the enthusiasm only lasted about an hour before the market plummeted and closed at 5,630.95, some 245.16 points and 4.2 percent lower than Friday's close. The bourse took a volatile slide of more than 500 points yesterday on turnover of NT$94.6 billion.
In order to revive the stock market and traditional industries, the Executive Yuan announced eight new economic measures on Saturday. As soon as the market opened yesterday, the TAIEX shot up 184 points and added another 100 points over the next 15 minutes, sending the TAIEX above 6,100 points. But the gain was only sustained for about an hour. According to market watchers, foreign investors began unload their shareholdings after 10am, and retail investors followed suit. The TAIEX never recovered after that.
Responding to the bearish decline, Minister of Finance Yen Ching-chang (
But the TAIEX began declining long before 11:30am, indicating that the China's threat was not the main cause of the drop, market watchers said.
"Retail investors unloaded their holdings when the market rebounded and foreign investors sold DRAM shares. A negative public interpretation of the eight measures made by the Executive Yuan last Saturday could be among factors that contributed to the fall," Yen said.
"If the TAIEX can not maintain above the 5,500-point level, it is likely to test 5,200 points," said Henry Cheng (
After the new administration disclosed its economic measures last Saturday, the plan was met with skepticism by academics and professionals. Most critics said the proposals were only technical measures and will do little to revive economic fundamentals.
Local Chinese-language media reported that among the heavy sellers yesterday was the KMT, who allegedly was one of the major investors who dumped their shares after 10am. Analysts said KMT has been dragging the TAIEX down in an effort to discredit the DPP administration.
"There are two measures that the new administration should take in order to stop the TAIEX from crashing yet again," Cheng said.
"The first measure is that the Central Bank of China should immediately allow the NT dollar exchange rate to fall from the current NT$32 to around NT$33 against the US dollar. Such a move would prevent foreign investors from unloading more local shares and speculating on the foreign exchange rate. Meanwhile, foreign investors would not have much choice but to put money into bank accounts or government bonds, which is subject to local tax. Sooner or later, foreign investors would have to put their money back into the stock market," Cheng said.
"Another measure the new administration could take would be to change the rule on short-selling -- selling shares first and buying them back later. Presently, regulations restrict short-sellers from selling short when prices are below the previous day's closing price. The new administration should remove the restriction by allowing trades at any price.
"Such a measure would balance the buying and selling in a free-market sense. When the market declines significantly, short-sellers would have to buy back their shares to prevent possible losses when the market has a significant rebound. At present, no one can buy after the market declines significantly," Cheng said.
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