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Talk of the Day -- When will local bourse rally again?

2012/06/04 23:16:18

The Taiwan Stock Exchange (TWSE) tumbled further Monday after its benchmark weighted index falling below the psychologically important 7,000-point barrier last week.

Big-cap stocks such as Taiwan Semiconductor Manufacturing Co. and smartphone vendor HTC Corp. saw their share prices shed more than 4 percent during the trading session.

As the two stocks' combined trading amount accounted for more than 10 percent of TWSE's total transaction value, their weak performance added up to the market's woes.

Since early April, the local stock market capitalization has shrunk by NT$2.82 trillion (US$94 billion), which translated into a loss of NT$120,000 for each local citizen, according to media reports.

On Monday, all Asian stock markets slumped over bleak U.S. job reports and debt crisis in Spain and Greece. The weighted TWSE index posted a 2.97 percent decline, the second worst among major Asian bourses.

Some business heavyweights questioned the government's wisdom of proposing to tax capital gains on securities at this critical moment.

The following are excerpts from a special report in the Monday edition of the United Evening News on the bearish stock market:

The TWSE weighted stock index fell 2.97 percent, or 211.43 points, to close at 6,894.66.

TSMC stock dropped 4.26 percent to NT$76.5 while leading smartphone maker HTC ended 6.52 percent lower at NT$387.0.

Foreign institutional investors were net seller of NT$2.7 billion in shares during the trading session.

Market analysts said the U.S. dollar index, which measures the greenback value against a basket of currencies, including euro and Japanese yen, and is closely related with global capital flow, could be an indicator to forecast when the local bourse could rally again.

The U.S. dollar index has rallied above 80 recently and is moving toward 85. Market analysts said if the index falls below 80 again, the local bourse's downward streak may halt and turn for the better.

Second, the analysts said the performances of the stock markets in five countries -- U.S., China, South Korea, France and Russia -- could be used to predict when global stock markets would bottom out.

At the moment, they said, U.S. and Chinese stock markets are relatively strong. "Both markets have become confidence buttress for stock investors," said a stock broker.

Third, market analysts said the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility, may be a useful indicator to forecast stock market trends.

The CBOE Volatility Index is constructed using the implied volatilities of a wide range of S&P 500 index options.

This volatility is meant to be forward looking and is calculated from both calls and puts. The index is a widely used measure of market risk and is often referred to as the "investor fear gauge."

Market analysts said the Volatility Index now hovers between 23 and 24, indicating "investor fear" is rising, but has not yet reached a peak.

"When the index hit 30, it signals the market already reaches a low point and bargain hunters will gradually step in," said a market analyst. (June 4, 2012).

(By Sofia Wu)