Stocks plunge in poll chaos, traders see
bargains By Mac William
Bishop
TAIPEI - Taiwan, gripped by political
chaos and shivering under the menace of Chinese
missiles, stands ready to fall apart at the seams some
say - its young democracy and trading economy at risk.
Having barely lost the presidential election, the
opposition has called for street demonstrations,
demanding redress, recount and a new poll. The local
stock market, the Taiwan Weighted Stock Exchange, or
Taiex, has been plunging as investors flee the market in
search of safer havens for their cash. All seems lost.
Right?
Not exactly. The truth is that despite
the legal fracas over the election, life in Taiwan is
still very much business as usual. Politics in Taiwan
has always been a boisterous, messy affair. Yet China
has not made any overt military moves and seems to be
handling the situation rather delicately, in contrast to
what many here see as its usual belligerence. And the
street demonstrations have been far more peaceful than
the average European football riot. Admittedly, the
window of a prosecutor's office in Taichung was broken.
The demonstrator was arrested.
So why are some
investors acting as though the bottom has dropped out of
the Taiex? Is it merely a knee-jerk reaction to bad
news, or is there some vital bit of information held by
local traders that is not immediately apparent to the
average observer?
The answer is this: investors
are being swayed by sensational and unbalanced media
reports. Meanwhile, more level-headed traders are
watching for opportunities to buy Taiex-listed shares at
bargain prices.
Business, economic situation
unchanged Nothing fundamental has changed in
Taiwan's business environment or economic situation, so
the question is one of political stability. Naturally,
investors avoid markets shaken by domestic turmoil and
generally wait for signs that the situation is returning
to normal before moving back in to the market.
Of course, to accurately judge when a country's
political situation is returning to normal, one must
have a balanced grasp of what is really happening, and
how events are likely to play out.
Taiwan's
election crisis entered its fourth day on Wednesday,
with continuing protests by the losing opposition
demanding an immediate recount. Lien Chan, defeated
presidential candidate of the Kuomintang (KMT),
overruled his own negotiators who had reached an
agreement in the Legislative Yuan with their victorious
rivals to pass emergency legislation permitting a
recount. Had Lien endorsed the deal, a recount could
have proceeded as early as next week, but he insisted on
an immediate re-tally. The island's High Court on
Wednesday rejected Lien's suit to have the poll results
annulled, saying he could refile his suit after the
Central Election Commission certifies the results on
Friday.
Most analysts in Taiwan believe that the
election dispute will be resolved peacefully, and soon.
The governing Democratic Progressive Party (DPP) has
been quite responsive to the demands of the opposition,
within the context of the law. Despite a bit of
rabble-rousing by opportunistic demagogues, no one has
been proposing any radical unpleasantness to deal with a
natural awareness that, with a margin of victory of only
0.2 percent, any number of factors in the tally of the
ballots may have skewed the results. In addition, there
is a bit of uncertainty about how to proceed with what
is, for Taiwan, an unprecedented situation.
Given that there was, after all, an
assassination attempt by an unknown party or parties on
the head of state last Friday - combined with the
contested election on Saturday - it should have
surprised no one that the local bourse plunged 6.98
percent on Monday. Undoubtedly it would have plunged
further, had it not been for the safety mechanism that
prevents a fall of more than 7 percent in share price in
a single trading session.
Pre elections,
Taiex traditionally inflated Investors should
also consider that before an election in Taiwan, the
Taiex has traditionally performed at an inflated level.
On Tuesday, the market fell another 2.94 percent
to close at 6,172.89 points.
On Wednesday,
however, the Taiex began to show signs of a recovery,
especially in the key opto-electronics and
semi-conductor sectors, as investors began
bargain-hunting. Shares of the world's largest
manufacturer of custom-made semiconductors, Taiwan
Semiconductor Manufacturing Corp (TSMC), fell by nearly
the maximum allowable amount of 7 percent on Monday and
Tuesday, but gained 5.45 percent on Wednesday after
reports that the company was beginning to buy back
shares.
Shares in Chi Mei Optoelectronics Corp,
a maker of flat-screen television components, dropped
6.19 percent on Monday, but gained 2.83 percent on
Tuesday. On Wednesday the share price fell 1.83 percent.
The Taiex closed the session at 6,213.56, up 0.66
percent on Wednesday.
Currency traders may also
have a good opportunity to make money off of the New
Taiwan dollar, as noted by JP Morgan Chase & Co and
Deutsche Bank AG on Tuesday.
Deutsche Bank said
the NT dollar will hit NT$32.60 (US$0.97) to the US
dollar in 12 months, while JP Morgan noted that "the
medium-term outlook for local currency appreciation will
be largely unaffected by recent political events,"
according to a Bloomberg report.
On Wednesday,
the NT dollar closed at NT$33.251 to the US dollar.
Of course, not every stock's drop in share price
is simply a manifestation of election-related
depression. As President Chen Shui-bian won re-election
(a verdict that now seem unlikely to be overturned by
any amount of legal magic by Lien Chan and his running
mate People First Party chairman James Soong), many
stocks are undergoing price-adjustment in anticipation
of the effects of his policy statements, especially on
China.
Investors see continued cold China
ties One area in which this is immediately
noticeable is stocks related to China. Most traders view
a Chen re-election as a sure sign that cross-Strait
relations will continue to be cold. The oft-touted
"direct links" plan - under which direct cargo and
passenger transportation flights, in varying degrees,
would be permitted between Taiwan and China - will
probably be left on hold for the foreseeable future.
This development has taken its toll on
transportation stocks such as the nation's two-largest
air carriers, China Airlines Corp (CAL) and EVA Airlines
Corp. CAL's share price dropped 6.98, 6.67 and 6.70
percent on Monday, Tuesday and Wednesday respectively.
EVA kept pace with CAL, dropping nearly 7 percent on
each of the past three days. Marine shippers, such as
Evergreen Marine Corp (affiliated with EVA), also
declined. Its shares fell almost 7 percent on Monday and
Tuesday, and 5.17 percent on Wednesday.
Companies with large operations or investments
in China have also been affected by the likelihood of a
continued impasse in the Taiwan-China dialogue. One firm
with extensive China operations, Kenda Rubber, is a
perfect example of this kind of price adjustment. Its
shares fell by nearly the maximum allowable amount of 7
percent on both Monday and Tuesday from NT$40.60 to
($1.22) NT$32.30 at Tuesday's close. On Wednesday,
bottom feeders moved in and the price somewhat leveled
out at NT$31.50, having fallen only 0.8 percent in the
day's trading.
The performance of shares such as
Kenda Rubber's is probably more related to the perceived
lack of future direct links than it is to the election
imbroglio.
However, as the Asian Wall Street
Journal reported, most analysts agree that fears over
the political turmoil in Taiwan are "grossly overblown".
The Taiex is depressed by short-term gloom, but the
economic issues and concerns in Taiwan remain the same
as they were before the election.
So long as
China adheres to the course it has adopted, and so long
as the ballot dispute is working itself out in the
Legislative Yuan and in the courts as well, there is no
reason to fear any long-term instability or disruption
in Taiwan's markets.
This may be unfortunate for
skittish investors who are shedding stocks at extremely
high prices. But for people with the stomach for a
challenge and a discerning eye, it is an opportunity to
cash in.
(Copyright 2004 Asia Times Online Ltd.
All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
