Taiwan bourse hits 8-year low despite Wall Street rally

The China Post staff

Taiwan’s beleaguered stock market took another nosedive yesterday despite a strong rally on Wall Street and a significant drop in margin loan interest rates. The weighted price index of the Taiwan Stock Exchange (TSE) shed 152.1 points to close at 4,219.89, the lowest level since Nov. 26, 1993. Daily market turnover shrank further to NT$38.49 billion as small-time stock players kept on the sidelines over market uncertainty. Electronics sector and stocks of large business groups suffered the most serious losses in yesterday’s trading, and many banking issues also tumbled to new lows. Mutual fund managers attributed the fall to insufficient investor confidence and heavy selling by institutional investors. An analyst with Jih Sun Securities Investment Trust Co. said although the global economic slowdown has shown signs of abating, Taiwan’s investor confidence remains weak due to the continued domestic political limbo. Worse yet, the analyst said, many foreign fund managers took a bearish view of TSE market prospects and have thus bet on a further drop in the index. “My observation was that some foreign institutional investors might have dumped a lot of medium- and large-size blue chips in recent days with a view to driving down the TSE to boost their profits from index futures trading,” the analyst said. In his view, the analyst went on, the existing gap between the price/earning ratios of small- and large-size stocks has also provided a potential mechanism for a downward market adjustment. At the moment, he said, the price/earning ratios for many small stocks have fallen 10 fold, while the price/earning ratios for bellwether large stocks still stands above the 15 fold mark.

Against this background, the analyst said, foreign institutional investors have dumped their holdings of such heavyweight blue chips as Formosa Plastics, Nanya, Far Eastern Textile and Tatung stocks. Prices for Formosa Plastics Group stocks all fell to their record lows yesterday. Finance Ministry officials would not confirm whether yesterday’s market plunge was related to the alleged foreign institutional investors’ dumping of bellwether blue chips. Instead, Finance Minister Yen Ching-chang urged local stock investors to remain confident in Taiwan’s economic prospects and not to overreact to temporary or short-lived phenomenon. After conducting spot checks on trading activities of five locally owned securities brokerages on Monday, TSE officials continued their inspection of three foreign-funded securities firms yesterday. TSE officials said they didn’t find any abnormal trading records in their spot checks of the three foreign-funded securities brokerages. With the index falling to a new low, the inspection activities drew much attention and speculation in the local securities community. TSE officials, however, stressed that the inspection was routine and had nothing to do with recent speculation that foreign institutional investors had dumped large blue-chip stocks to drive down the index. “We have conducted regular inspection of securities brokerages trading activities for many years in order to maintain market order, stability and stock trading safety,” said a senior TSE executive.