Europe debt concerns return to haunt Taiwan


TAIPEI — Concerns over the debt problems in the eurozone returned to affect the local stock market yesterday, dragging down the index below 6,800 points, after German Chancellor Angela Merkel ruled out the possibility of issuing common euro bonds, dealers said. Sentiment was undermined by the objection of Germany, the largest economy in Europe, as investors wondered whether the region will get enough funding to deal with its debt crisis, they said.

While the local financial authorities have asked securities borrowers to return their loaned shares in a bid to curb short selling and prevent further volatility in share prices, the unfavorable external factors still weighed on the local bourse and sent the index lower, they added.

The weighted index fell 79.87 points or 1.16 percent to end at 6,784.52 points, after moving between 6,751.48 and 6,950.50, on turnover of NT$105.65 billion.

The market opened up 0.83 percent and moved to the day’s high after the Financial Supervisory Commission tightened restrictions on securities borrowing by asking borrowers to return their loaned shares ahead of the maturity, while requiring life insurance companies and government-led funds not to extend new securities lending, they said.

Securities borrowing allows the borrower, who expects the price of a stock to fall, to hold a short position for a longer duration, usually in exchange for a lending fee to the lender.

However, profit taking emerged to erase the early gains after the index briefly breached the technical resistance level of around 6,900 points amid escalating fears of the European debt situation, dealers said.

“It seemed that many investors remained frustrated by the development of the Europe debt situation as the leaders there failed to come up with any immediate solution to deal with the crisis,” Concord Securities analyst Kerry Huang said.

Huang said to avoid further losses amid the global financial volatility, many foreign investors have been moving funds to the U.S. dollar as a safe haven by keeping on dumping equities.

“In line with its counterparts in Asia, the local bourse trended lower in the second half of the Friday trading session,” Huang said. “With no signs of any quick turnaround in Europe, it is likely for the local market to test the support range of 6,600-6,700 points soon.” China Steel rose 4.10 percent to end at NT$29.20 in heavy trade as institutional investors rushed to buy the stock on the open market to meet the demand to return their loaned shares to their lenders.

The plastics and chemical sector suffered the heaviest losses among the eight largest sectors of the market, finishing down 2.43 percent. Financials shed 2.03 percent, textiles fell 1.79 percent, construction shares lost 1.58 percent, and the paper and pulp sector fell 1.36 percent.

Machinery and electronics lost 1.01 percent and cement stocks fell 0.41 percent, while the food sector closed up 0.32 percent.