Taiwan shares plunge over 400 points amid worries over economy

Taipei, Shares in Taiwan took a beating Monday, falling more than 400 points to end below the 10,000 point level, as concerns grow over the likely impact of the novel coronavirus disease COVID-19 on the global economy, dealers said.

Such worries were heightened after another surprise move by the U.S. Federal Reserve, which lowered its key interest rates by one percentage point on Sunday, the second emergency rate cut in 15 days, prompting local investors to dump large cap stocks across the board, they said.

The weighted index on the Taiwan Stock Exchange (TWSE) or the Taiex closed down 411.10 points, or 4.06 percent, at the day's low of 9,717.77, off an early high of 10,130.80, on turnover of NT$209.38 billion (US$6.94 billion).

The market opened down 0.59 percent and selling escalated in the wake of a more than 1,000 point dive on the Dow Jones Industrial Average, which points to a bad beginning on the stock market later in the day, even after the Fed cut its key interest rates to zero in a bid to combat the COVID-19 contagion, dealers said.

Downward pressure was seen among many large-cap stocks across the board as the bellwether electronics sector led the downturn at a time when investors are worried about weakening global demand for tech gadgets, they said.

Selling in financial stocks pushed the broader market down further amid fears that the local central bank will follow the Fed and cut interest rates on Thursday, which will narrow the interest spread, they added.

In addition to a cut in its key interest rates, the Fed also announced a new round of quantitative easing by injecting US$700 billion into the market.

"The Fed's easing of its monetary policy aims to prevent the business sector from experiencing a credit crunch since the economy faces headwinds from the virus contagion," Concord Securities analyst Kerry Huang said.

"In the interest of the economy for the longer term, the Fed's measures are positive," Huang said. "But, the global equity markets reacted badly to the news, thinking that it indicates the impact from the virus spread will be larger than expected." "Today's large turnover showed panic-led selling throughout the session, showing market sentiment is fragile," he said.

Huang said such global demand worries prompted many investors to dump large cap stocks in the electronics sector with "Apple concept stocks" in focus.

"Apple has announced the closure of all of its stores outside the greater China area, a move expected to hurt the company's sales and undermine shipments of its suppliers," Huang said. The electronics sector ended down 4.47 percent at the day's low of 427.43.

Among Apple concept stocks, contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), the most heavily weighted stock on the local market, lost 4.66 percent to close at NT$276.50 with 103.26 million shares changing hands.

Meanwhile, iPhone assembler Hon Hai Precision Industry Co., second to TSMC in terms of market cap, fell 4.69 percent to close at NT$71.10, and Largan Precision Co., a supplier of smartphone camera lenses to Apple, shed 8.25 percent to end at NT$3,725.00.

A plunge in international crude oil prices reflecting ongoing tensions between Saudi Arabia and Russia sent ripples through the petrochemical sector, Huang said.

Formosa Chemicals & Fibre Corp. lost 4.29 percent to end at NT$69.20, Nan Ya Plastics Corp. shed 4.23 percent to close at NT$58.80, Formosa Petrochemical Corp. dropped 3.98 percent to end at NT$70.00, and Formosa Plastics Corp. closed at NT$78.20, down 2.98 percent.

"After the Fed's latest rate cut, the market widely anticipates the local central bank will follow suit at its quarterly policymaking meeting scheduled for Thursday," Huang said. "Falling interest rates are expected to squeeze banks' profitability due to a narrower interest spread so the financial sector also got hit today."

In the financial sector, which fell 4.23 percent, Fubon Financial Holding Co. shed 4.04 percent to close at NT$38.05, Mega Financial Holding Co. dropped 3.33 percent to end at NT$29.00, and Cathay Financial Holding Co. lost 3.24 percent to close at NT$35.80.

Judging from the losses suffered by these large cap stocks, Huang said, it is likely foreign institutional investors stayed on the sell side Monday.

According to the TWSE, foreign institutional investors sold a net NT$33.35 billion worth of shares on the main board Monday after net sales of NT$30.23 billion Friday.

Source: Focus Taiwan News Channel