TAIPEI–Shares in Taiwan staged a technical rebound Friday after China suspended a stock market circuit breaker mechanism that had meddled in trading with a heavy hand, sending share prices in the mainland market into a tailspin and causing volatility in global markets a session earlier, dealers said.
Bargain hunters entered the local main board in the wake of a decision by the People’s Bank of China to raise the Chinese yuan’s reference rate against the U.S. dollar to stabilize the Chinese currency, the dealers said.
Buying focused on large-cap stocks, in particular in the electronics sector, which had been hammered by heavy foreign institutional selling in the past few sessions, while government-led funds are believed to have lent support to the local equity market, they added.
The weighted index on the Taiwan Stock Exchange closed up 41.91 points, or 0.53 percent, at 7,893.97, after moving between 7,788.71 and 7,906.55, on turnover of NT$91.34 billion (US$2.74 billion).
The market opened down 0.52 percent and fell to the day’s low in the wake of a plunge on Wall Street overnight, but bargain hunting emerged to push up the index into positive territory as investors took cues from China’s move to drop the circuit breaker mechanism, prompting the China equity market to bounce back from a steep decline seen a day earlier, the dealers said. Circuit Breaker Mechanism The circuit breaker mechanism implemented Jan. 4 was designed to protect retail investors at a time of market fluctuations by halting trading. When the market suffers a plunge, the mechanism is activated. But in the past four days when the mechanism was in place, the circuit breaker failed to calm the market but caused sell-offs, creating a spillover effect that affected the global market.
“The faltering in market trading in China led to the market becoming much less liquid, and that’s why when trading resumed, investors rushed to sell their stocks amid fears that the next trading halt would bar them from cutting holdings,” Concord Securities analyst Kerry Huang said. Time to Bounce Back: Analyst “Now, the decision to stop using the circuit breaker made many investors in China relieved and pushed up share prices there. So the regional markets, including Taiwan, followed suit in moving higher,” Huang said.
He said that high-tech stocks on the local main board were beneficiaries of a rebound staged by the China market, “as these stocks had been oversold and it was time to bounce back.” Electronics Sub-index Up 0.91%