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Local financial stocks fall on downgrade of foreign counterparts

2012/06/22 12:33:40

Taipei, June 22 (CNA) Local financial stocks trended lower Friday morning as market sentiment was undermined by Moody's Investors Service's downgrade of the credit ratings of 15 major financial institutions worldwide, dealers said.

The local financial sector experienced follow-through selling from the previous session, when large cap stocks led a dive of the broader market after negotiations between Taiwan and China on investment protection hit a snag, dealers said.

As of 11:33 a.m., the financial sector had fallen 1.17 percent, while the weighted index was down 0.85 percent at 7,217.15 points.

Among the financial heavyweights, Chinatrust Financial Holding shares had dropped 1.72 percent to NT$17.10 (US$0.57), Chang Hwa Commercial Bank had fallen 1.28 percent to NT$15.40, and Cathay Financial Holding was down 1.19 percent at NT$29.05.

"I suspect foreign institutional investors stood on the sell side to trim their holdings in local large cap financial stocks this morning after Moody's downgrade," Grand Cathay Securities analyst Mars Hsu said.

After Wall Street closed overnight, Moody's announced it had cut the credit ratings of 15 major financial institutions, citing concerns over the stability of the global financial market.

The 15 financial institutions named included Bank of America, Goldman Sachs and JPMorgan and the downgrades are expected to raise their borrowing costs.

"Although Taiwan's banks are not globalized to the extent that the downgrades will affect them directly, Moody's move has hurt the mood of investors here," Hsu said.

"The downgrades showed escalating fears over a worsening financial environment and a weakening economy worldwide, which will eventually affect the local financial sector," Hsu said.

Amid a slowing domestic economy, Taiwan’s central bank has been trying hard to maintain liquidity by keeping interest rates low, he noted. "In such a low-interest rate environment, local banks are faced with narrowing interest rate spreads, which has eroded their profitability," Hsu said.

In its quarterly policymaking meeting Thursday, the central bank left its key interest rates unchanged for the fourth consecutive quarter, with the discount rate at 1.875 percent.

Hsu said investors had better trade financial stocks with caution even if the stocks rebound.

"With foreign institutional investors still holding a big chunk of shares of financial heavyweights, further volatility on the global financial markets could prompt them to dump more financial shares in the local bourse," he said.

(By Frances Huang)
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