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ROUNDUP: Two sessions of losses wipe out all equity gains this year

2018/02/06 19:56:46

Taipei, Feb. 6 (CNA) Heavy losses on the local main board in the first two sessions of this week eroded all gains posted by the market this year, reflecting a plunge on Wall Street amid rising fears that the U.S. Federal Reserve will accelerate the increase in its key interest rates.

On Tuesday, the weighted index on the Taiwan Stock Exchange (TWSE) closed down 542.25 points, or 4.95 percent, at 10,404.00, with market sentiment impacted by a 1,175.21 point or 4.6 percent fall on the Dow Jones Industrial Average overnight, dealers said.

The Tuesday losses were the largest since March 13, 2000, when the main board fell 617.65 points or 6.18 percent. Turnover expanded to NT$240.88 billion (US$8.19 billion), the highest level in almost nine years, indicating investors dumped stocks in a panic, dealers added.

The 4.95 percent plunge came after a 1.62 percent drop on Monday which was also caused by volatility on Wall Street after better-than- expected job data for January in the U.S. at a time of strong economic recovery, dealers said.

The positive jobs data prompted investors to conclude the Fed will raise interest rates four times this year instead of the three the market had previously anticipated, dealers added.

Over the two sessions, the local main board posted 722.23 points or 6.49 percent in losses, wiping out all the gains posted this year. Before the 6.49 percent dive, the weighted index had added 4.54 percent since the end of 2017.

Despite the big losses, there is no sign Taiwan's stock market will stage a quick rebound, KGI Securities analyst Phil Chu said on Tuesday.

"Dow futures continued to fall in after-hours trading, so it's possible the U.S. market will keep falling after it opens on Tuesday. If so, the local market is likely to suffer additional losses," Chu said. "Wall Street still dictates the global market."

In the two trading sessions, the heavy losses cut market capitalization on the main board by more than NT$2 trillion to NT$31.18 trillion on Tuesday, according to the TWSE.

Based on the 3.12 million investors currently trading on the local equity market, they booked an average of almost NT$700,000 in losses per head due to the drop in market valuation, the TWSE data indicated.

Contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC) came under heavy pressure in the two sessions as a result of selling by foreign institutional investors who tend to dump liquid stocks, like TSMC, faced with redemption demand back home when Wall Street tumbles.

In the two sessions, TSMC shares shed almost 7.9 percent to close at NT$239.00 on Tuesday, and since it is the most heavily weighted stock on the local market, those losses drove the downturn of the broader market, dealers said.

On Tuesday, TSMC shares even dipped to a low of NT$234.00 before recouping part of their earlier losses. Based on Tuesday's intraday low, the chipmaker had lost almost NT$500 billion in market value, compared with the previous session.

Despite the steep fall over the two sessions, the country's National Financial Stabilization Fund has no immediate plans to intervene in the stock market to prop up share prices.

Vice Finance Minister Su Jain-rong (蘇建榮), executive secretary of the stabilization fund, told reporters that the plunge resulted from investors' efforts to lock in gains from recent sessions.

Su said the losses on Taiwan's equity market largely reflected the plunge on Wall Street with investors at home and abroad sensing the risks of high valuations after the recent strong showing on the global equity market.

He said the decline had nothing to do with systemic risks, as in the last financial crisis, since the global economy is still growing, but added the stabilization fund will continue to closely monitor the market.

The NT$500 billion stabilization fund was set up in 2000 by the government to serve as a buffer against unexpected external factors disrupting the local bourse.

The fund intervenes in the market when it receives authorization from the fund committee, which is currently managed by Su.

An official from the Financial Supervisory Commission (FSC), who asked not to be named, told CNA that before Wall Street stabilizes stimulus efforts are unlikely to succeed so the FSC does not plan to draft measures to bolster local share prices.

He said, once Wall Street stabilizes if the local stock market remains on a downtrend, then the FSC will take action.

(By Tien Yi-pin, Chang Chien-chung, Tai Yi-chu and Frances Huang)