For many stock investors in Taiwan, one of the crucial questions they have been asking following the recent share plunges is: Should we take a profit from our equity investments before the Lunar New Year or maintain our portfolio holdings unchanged throughout the holiday?
To sell or to hold? That is the question among investors because any changes that may happen during the Lunar New Year holiday — the longest in the Asia-Pacific region — would be a risk to their equity investments.
History suggests that when the market is to close for several days, investors are likely to reduce stock holdings regardless of whether they receive the positive news they may have been expecting. This year, the local stock market will be closed from Thursday until trading resumes on Feb. 22.
In the past week, the benchmark TAIEX fell 427.57 points, or 5.60 percent, to 7,212.87. So far this year, the index has dropped 975.24 points, or 11.91 percent. The share plunges were in contrast with a series of positive economic data released by the government recently, as well as announcements by several technology firms in the past two weeks that they swung into black in the final quarter of last year from a year ago, a sign that the nation has left behind its worst recession in decades.
It is possible that investors were overreacting to negative news following declines in global stock markets. The message from the recent selling spree in local shares suggests that the global recovery is not firm and that problems within some advanced economies are weighing on investors’ minds.
Last week, it was all about the sovereign debt problems in Spain, Greece and Portugal. While the debt default problem is still brewing in Greece, a big worry is that whether the problem in Greece will spark similar developments in other deficit-hit European countries and then trigger a contagion effect in the whole of the euro-zone economy.
Moreover, soaring government debt also reminds us of the unwelcome consequences of government fiscal and monetary policy support over the past two years.
While those stimulus efforts appear to have helped avoid a double-dip recession, their implementations led to problems such as overcapacity in some sectors, potential new asset bubbles and bad loans.
In Taiwan, asset bubbles and high unemployment remain concerns. Notwithstanding this, last week the Ministry of Economic Affairs unexpectedly revoked a recapitalization registration of a Far Eastern Group subsidiary dating back to 2002, which cast doubt on the group’s control of the profitable Pacific SOGO Department Stores. This, in turn, has had a snowball effect on the main bourse.
With concerns that the group’s three main units — Far Eastern New Century Corp, Far Eastern Department Stores Ltd and Asia Cement Corp — may face a regulatory order to suspend share trading on the main bourse, investor confidence will remain shaky.
Therefore, during the remaining four trading sessions before the Lunar New Year holiday, it looks like few investors will choose to go against market sentiment. Bear in mind, however, that a major characteristic of the current market is that nobody is taking anything for granted.
Whenever we think the worst is over, a new threat emerges somewhere else to sow fear and uncertainty.
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