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Taiwan dollar exchange rate affects share prices

The steep tumbling of Taiwan currency and new hesitancy of foreign investors are creating new uncertainties over the Taiwan stock market. The weighted price index on the Taiwan Stock Exchange (TAIEX) yesterday slid 199.86 points or 3.8 percent to close at 5,109.24.

Qualified foreign institutional investors (QFIIs) played a key role in lifting Taiwan share prices from only around 3,400 points less than three months ago. The pace of successive rallies quickened after the general elections on Dec. 1.

The ruling Democratic Progressive Party's success in replacing the opposition Kuomintang as the largest political party in the Legislative Yuan sparks hope for a more stable political development.

The easy-credit policy and 11 cuts in interest rates by the Central Bank of China over the past year have also helped induce massive funds back into the stock market.

Yet most of the QFIIs have recently started unloading their holdings in profit-taking frenzies ahead of the Christmas and New Year holidays, although domestic institutional investors attempted to engineer new rallies to improve their annual financial performance before the end of the year.

However the sudden precipitous drop of the Japanese yen against the U.S. dollar in the past week also created new and mounting pressure on the depreciation of Taiwan currency. Securities analysts expressed worries that the confidence of foreign investors could have been shaken and may divert their funds out of Taiwan.

The sharp drop in the prices on the U.S. stock market yesterday exacerbated pessimistic sentiments here.

Except for the shares of companies that will gain from increased export sales due to the falling exchange rate for the NT, share prices of a majority of 543 listed firms suffered setbacks while only 79 stocks managed to rise.

Prices of Taiwan Semiconductor Manufacturing Co. (TSMC), one of the top favorites of the QFIIs, fell by its daily limit of seven percent to shed NT$5.50 to NT$80. United Microelectronics Corp., Taiwan's second largest dedicated chipmaker after TSMC, also lost NT$2.40 to NT$45.60.

In spite of widespread market expectations for rallies to be staged by financial shares in view of successful reorganization into some financial holding companies, Hua Nan Financial dropped NT$1.30 to NT$19.70 and Fubon Financial also retreated NT$1.30 to NT$31.30.

After soaring more than 1,000 points in the first two weeks of December, the weighted price index fell 377 points in the past week.

Securities analysts said that the movements of the yen and local currency will continue playing a major role in dictating the fluctuations of share prices next week. They noted that the sustained fall of the New Taiwan dollar might prompt more foreign investors to remit capital out of Taiwan.

They said investors should also take into consideration the effects from the beginning of the Christmas holiday season in the coming week.

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