Taiex braces for fall on U.S. heavy losses, looks to rebound

Update: Taiwan shares open lower (Sept. 22)

Taipei, Sept. 21 (CNA) Shares in Taiwan are likely to take a beating after trading resumes Wednesday following the four-day Mid-Autumn Festival holiday, in the wake of a plunge on U.S. markets Monday amid fears over a possible financial crisis triggered by the debt of a Chinese property giant, analysts said.

Chen Yi-kuan (陳奕光), chairman of First Capital Management told CNA on Tuesday that it will be no surprise if the Taiex, the weighted index on the Taiwan Stock Exchange, follows the dive on U.S. markets soon after the local market open Wednesday.

On Monday, the Dow Jones Industrial Average fell 614 points or 1.8 percent and the tech-heavy Nasdaq index shed 2.2 percent with market sentiment hit by worries about real estate developer China Evergrande Group, which is on the brink of default on US$300 billion of debt.

Following the Dow's heavy losses, the Tokyo market shed 2.17 percent Tuesday, while the Hang Seng Index in Hong Kong bounced back from Monday's 3.3 percent dive to close up 0.69 percent Tuesday.

"The tumble on the Dow could plunge the local main board into a knee-jerk reaction, pushing down the Taiex to test the 120-day moving average of 17,159 points," Chen said. "I do not rule out the possibility that some mutual funds with stocks in the greater China market could cut their holdings after the market opens."

On Sept. 17, the last trading session before the current long weekend, the Taiex ended down 1.91 points, or 0.01 percent, at 17,276.79.

"However, Dow futures have now moved higher, which could offset the impact of the plunge on the spot market Monday for Taiwan's investors," Chen said.

"If the Taiex dips to the 120-day moving average, some bargain hunters could turn active to help the local main board stage a technical rebound later," Chen said.

Chen said the debt problems faced by Evergrande are not expected to have too much of an adverse impact on Taiwan, and as long as investors remain calm, the Taiex is expected to turn stable, off its earlier low, Wednesday.

According to the Financial Supervisory Commission, the top regulator in Taiwan, Taiwanese banks, insurance companies and securities firms have exposure worth NT$2.2 billion (US$79.42 million) to Evergrande, compared with NT$2.25 trillion worth of total lending to China.

Chen said since the Taiex came off its high by falling more than 100 points in the late trading session on Sept. 17 to end flat, selling caused by Evergrande on Wednesday could be capped.

Dealers said Evergrande is unlikely to be another Lehman Brothers, which went bankrupt in 2008 due to a subprime mortgage crisis, since the Chinese firm's financial difficulties have largely resulted from the failure of business strategies and the overall risk is controllable.

In addition, as foreign institutional investors have stood on the buy side in recent sessions to rebuild their positions following earlier selling, dealers said, foreign institutional buying could continue after the local trading resumes.

Despite a 1.13 percent fall on the Taiex last week, foreign institutional investors registered net purchases of NT$4.47 billion worth of shares on the main board for the week, down from net buying of NT$27.62 billion the previous week.