I was really amused to read this article on the China Post.
Taiwan's share prices plunged yesterday, as banking shares led the decline in the wake of a money laundering scandal involving former president Chen Shui-bian and his family.
By the close of trade, TAIEX, the market's key barometer, decreasing 195.76 points to close at 7,000.74.
The local bourse opened at 7,189.68 and fluctuated between 7,213.69 and 6,996.78.
A total of 3.59 billion shares changed hands on market turnover of NT$82.84 billion. The three major institutional investors registered a net sale of NT$9.09 billion, breaking down into a net sale of NT$6.32 billion by foreign investors, net sale of NT$1.575 billion by asset management firms, and net sale of NT$1.194 by securities firms.
Banking and financial shares dropped by an average of 4.8 percent, on fears some financial institutions may run into trouble in the wake of Chen's money laundering scandal.
Fair enough, there may be some nervousness about the banking sector but to honestly blame the declining stock prices on Monday on the Chen scandal is insane. Forty-eight (48) of the fifty-eight (58) companies listed on the TSEC Taiwan Technology Index also saw declines in their share prices and I assure you this has more to do with future supply and demand than the Chen scandal. Some tech companies saw declines larger than 6%. This is not to mention the declines in stock markets around the region. Reuters reported on the decline in the HK stock market on Monday saying:
Hong Kong shares fell 1.2 percent on Monday, with the main index hitting a new 5-month low, as China coal stocks slid after a hike in export taxes on the commodity and mobile phone maker Foxconn International (2038.HK: Quote, Profile, Research, Stock Buzz) plunged 19.6 percent after a profit warning.
Furthermore, declines on the Dow Jones on Friday, a storm threat in US and increases in the oil prices and the continued trouble of Freddie Mac and Fannie Mae combined with inflationary data pouring out of the states suggests there perhaps were other forces putting downward pressure on the shares.
I would suggest the declines in the banking shares on Monday were in fact more to do with the possible continued exposure of Taiwan firms to US companies engaged in sub-prime mortgages (on this I may be wrong as I am not in the banking sector and don't follow it too much) and investments in Freddie Mac and Fannie Mae. Reuters wrote earlier this year:
Taiwan's banks and insurers had invested a total T$97.2 billion (US$3.0 billion) in U.S. subprime-related products with losses of T$23.7 billion as of end of December, the island's financial regulators said on Wednesday.
The losses, realised and unrealised, were reported by 21 banks and 12 insurance companies from their subprime and structured investment vehicle (SIV) debt, which is backed by subprime mortgages, the Financial Supervisory Commission said in a statement.
Also, considering the index has been bouncing around the 7000 mark for the last few weeks is indicative of the value shareholders are putting on the market index. It is doubtful they will let it go much higher than 7000 or lower than 6800 (I might be wrong here) but 7000 seems to be the equilibrium price (if such a thing really exists) right now. Haven't the writers at the China Post heard of efficient markets? Perhaps not!
I would suggest there are more significant reasons for the decline in the stock prices than the Chen scandal. Rather blaming Chen for all the woes in the economy for the next hundred years and trying to scandalize the man more rather than finding proactive ways to help the economy and the share prices out of their current nose dive is stupid.
If, however, the China Post IS going to lay the decline of the share prices on Monday at Chen's door, then they must surely blame President Ma for the dramatic decline of the index from more than 9000 at the time of his election to its current 7000 mark, but they would never do that now would they? (Just to be clear, I don't blame President Ma, I think the declines are indicative of the current global economic conditions)
Blaming the Chen scandal for stock price declines is the same as blaming the stock price drop on the rout of the Boks by the All Blacks (19-0) on Saturday night. But hey, what do I know?
P.S. Yesterday the Dow Jones dropped 1.14%, the NASDAQ 1.35%, the S$P500 0.93%. If Taiwan stocks drop today it is nothing to do with Chen.
The China Post: Shares plunge in wake of Chen scandal
Reuters: HK shares down on China losses; Foxconn plunges 20 pct
Reuters: Taiwan firms had US$3 bln in subprime exposure by end-Dec
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