Local bourse dives on capital gains tax worries

Wednesday, April 4, 2012

TAIPEI -- Concerns that capital gains taxes will be assessed on stock investments sent Taiwan's stock market into a tailspin yesterday and pushed the benchmark index below the 7,800-point mark by the end of the trading session, dealers said.

Market sentiment was also dampened by 10-percent hikes in domestic fuel prices that took effect Monday, with many investors fearing the higher fuel costs will hurt the domestic economy, they said.

The weighted index closed down 102.05 points, or 1.29 percent, at 7,760.85, after moving between 7,723.39 and 7,907.62, on turnover of NT$106.30 billion.

The market opened up 0.54 percent and moved to the day's high on a technical rebound from losses seen a day earlier after Wall Street rose overnight on the back of better than-expected manufacturing activity data in the U.S., dealers said.

Profit taking later set in, however, and selling escalated as worries over plans to levy capital gains taxes on profits from stock trades returned to overshadow the market, they said, with the domestic fuel price increases only making things worse.

“Look at the expanded turnover. Selling was heavy, and that dragged the index below 7,800 points,” Mega Securities analyst Alex Huang said. “The market has become technically unstable and weak.”

Fears rose after Finance Minister Christina Liu pledged Monday at a Legislative Yuan hearing to send a capital gains tax proposal within one month to the Executive Yuan for approval.

“It is very likely that the government will impose a capital gains tax eventually. But how the tax will be collected has become a major concern to many investors, in particular to institutional investors who hold massive portfolios,” Huang said.

“Such uncertainty has hurt market confidence a lot and prompted many investors to cut their holdings now to avoid further losses caused by the tax,” the analyst said.

In addition, fuel price hikes and an expected increase in electricity rates are expected to adversely affect the local economy, in particular in the second half of this year, Huang said.

“Investors should keep a close eye on the world's economic fundamentals, which will serve as one of the key factors behind the local economy's performance in the future,” he said.

Among the losing stocks, smartphone maker HTC fell 5.45 percent to close at NT$555.00, and property developer Prince Housing shed 6.70 percent to end at NT$20.90.

Fortunately, Huang said, select large cap stocks, such as United Microelectronics Corp. (UMC) and Formosa Plastics Corp., bucked the downtrend, lending some support to the broader market.

UMC closed up 1.06 percent at NT$14.35, and Formosa Plastics ended up 1.76 percent at NT$86.70.

By the end of the session, the construction sector had suffered the heaviest losses of any of the market's eight largest sectors, finishing down 2.5 percent. Machinery and electronics shares, and paper and pulp stocks fell 1.7 percent, and textiles shed 1.5 percent.

Financials fell 0.8 percent, food stocks shed 0.7 percent, plastics and chemical shares lost 0.6 percent, and the cement sector closed down 0.1 percent.

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