Stock prices dropped 1.52 percent yesterday as they suffered a double blow from the central bank’s unexpected hikes in key interest rates to curb rocketing property prices and were dragged down by the decline on Wall Street as the European debt crisis deepens.
The benchmark TAIEX slid 115.18 points to end at 7,474.71 yesterday, ending the week 0.24 percent lower than the previous week.
The Dow Jones Industrial Average fell 1.41 percent on Thursday.
“A decline in the US stock market has dragged down Asian stock markets, including Taiwan and the central bank’s move to increase interest rates added to the already weak sentiment,” said Andrew Teng (鄧安瀾), an analyst with Taiwan International Securities Corp (金鼎證券).
The central bank announced on Thursday it would raise benchmark interest rates by 0.125 percentage points, joining some Asian central banks and countries such as Australia and India in gradually resuming a tighter monetary policy.
DETERMINATION
“The central bank [of Taiwan] is showing its determination to fight the heating property market. Property developers will suffer the most,” Teng said.
The central bank said in a statement that Asian stock markets ended lower yesterday after the US stock market plummeted 1.41 percent because investors were concerned about the potential impact of the US’ banking regulations reform bill and renewed worries about Greece’s debt crisis.
“The 0.125 percentage hike is more symbolic than substantial,” said Kevin Chung (鐘國忠), an analyst with Jih Sun Securities Investment Consulting Co Ltd (日盛投顧).
“It will only briefly upset property investors’ interest payments as the cost of borrowing will increase only slightly,” he said.
The construction sector sub-index suffered the brunt of yesterday’s fall, plunging 3.7 percent as the central bank also said on Thursday it will tighten housing mortgage rules in the greater Taipei area.
Shares of the nation’s major property developers, Farglory Land Development Co (遠雄建設) and Huaku Development Co (華固建設), dropped 4.83 percent and 2.86 percent to NT$63 and NT$84.9 respectively.
IMPACT
The central bank’s rate hikes would “have only short-lived effects on stock sentiment but a longer-term impact on overall property demand,” Morgan Stanley strategist Jesse Wang (王嘉樞) said in a client note yesterday.
“Banks will benefit from the improved net interest margin, while life insurers should benefit from higher asset yields,” Wang said.
Shares of state-controlled Chang Hwa Commercial Bank Ltd (彰化銀行) led the rise in financial stocks yesterday, jumping 4.85 percent to NT$14.05.
Macquarie Securities said in a report that its top pick on this interest rate hike is Shinkong Financial Holding Co (新光金控) and to a lesser extent Cathay Financial Holding Co (國泰金控).
Separately, the New Taiwan dollar appreciated NT$0.036 against the US dollar to NT$32.18, retreating from a big gain of NT$0.21 in the middle of the trading session.
Turnover remained slim at US$717 million.
“The central bank stepped in to prop up the local currency as it aims to keep the NT dollar stable at around the NT$32 level,” a dealer said, adding that he expected the local currency to appreciate in the long run.
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