The nation’s financial conditions may tighten over the next six months, with currency and interest rates likely to surge, while the stock market could head south, Cathay Financial Holding Co (國泰金控) said yesterday, citing its newly developed financial conditions index (FCI).
The FCI, co-developed with National Taiwan University, aims to offer a snapshot of the nation’s financial conditions based on data from domestic bonds, equities, foreign exchange and overnight lending markets. The index’s base is 2003.
HOLDING STEADY
With a reading of 93.8 points last month, the index flashed a “green” light, indicating steady financial conditions, Cathay Financial said. However, a preliminary reading for this month showed the index rising to 119.2 points and flashing “blue,” indicating tightening conditions, it said.
A reading above 100 points indicates financial tightening, while a reading below 100 shows financial easing. Cathay Financial also set up five colors — red, yellow-red, green, yellow-blue, and blue — to differentiate the nation’s five financial trends: easing, move to easing, steady, move to tightening and tightening.
TIGHTENING AHEAD
“This provides more evidence of tighter financial conditions ahead, with the stock market likely trending down, while currency and interest rates trend up,” Cathay Financial chief economic adviser Kuan Chung-ming (管中閔) told a media briefing.
The US and eurozone debt crises would be the main factors that determine whether financial conditions would tighten, as these uncertainties could increase volatilities in global stock markets, including the TAIEX, and could drive the US dollar further down in the near future, Kuan said.
However, the current tightening is much milder compared with the global financial crisis in 2008, Kuan said, adding that the index edged close to 150 points in October 2008, the highest level on record.
The financial tightening could continue for six months, Kuan said.
However, the situation would improve, with the index likely to flash “yellow-blue” in January, he said.
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