Property stocks plunge on interest rate hike concerns
CNATAIPEI--Shares in property developers on the Taiwan Stock Exchange (TWSE) took a beating Friday morning amid fears that enthusiasm among home buyers will be stamped out if the central bank raises interest rates, dealers said.
September 28, 2013, 12:05 am TWN
The central bank decided in a quarterly policymaking meeting held Thursday to leave its key interest rates unchanged, but Perng Fai-nan, governor of the bank, said at a press conference that people should not expect interest rates to stay low forever.
Dealers said Perng's comments prompted the market to speculate that interest rates will be raised in the next quarterly policymaking session in December at the earliest, the last thing property developers want to see.
As of 11:21 a.m., shares of Kindom Construction Corp. fell 7 percent, the maximum daily decrease, to NT$35.75, and shares of Huaku Development Co. shed 4.51 percent to NT$84.60, while shares of Highwealth Construction Corp. lost 3.78 percent to NT$63.60.
The construction sub-index was down 2.59 percent at 312.14 points, in contrast to the 0.36 percent gain of the weighted TWSE index to 8,214.13 points.
“Perng's remarks scared many investors, so they rushed to dump developer stocks soon after the local bourse opened,” Grand Fortune Securities analyst Chen Wei-tai said.
The central bank left its key interest rates unchanged for the ninth consecutive quarter, maintaining the discount rate of 1.875 percent, the rate of accommodations with collateral of 2.25 percent and the rate of accommodations without collateral of 4.125 percent, citing a need for liquidity to spur local growth.
“It seemed that investors shrugged off the fact that the central bank continues to maintain ample liquidity for now, instead becoming panicked and cutting property developer stock holdings amid fears of interest rate hikes,” Chen said.
Perng repeatedly warned consumers during his press conference to stay alert for a possible uptrend in interest rates and remain cautious about risks resulting from rising borrowing costs.
The Chinese-language Economic Daily News reported that some property market analysts have even anticipated that the central bank will start to raise key interest rates as early as the fourth quarter.
“Although a low interest rate market is coming to an end with high liquidity maintained for nine consecutive quarters, I do not think the central bank will hike rates so soon because the pace of economic recovery in Taiwan remains slow,” Chen said.
In August, the government lowered its forecast for economic growth this year from 2.40 percent to 2.31 percent, citing slower investment and weaker exports.
“As Taiwan is faced with little inflationary pressure, I expect the central bank will raise its interest rates no sooner than the first quarter of next year,” Chen said. “Fears over quick interest hikes have been overblown.”
Still, after the heavy losses, Chen said, the local property sector has become technically weaker and it is possible for property stocks to trend even lower amid fragile market sentiment.
“To my knowledge, many institutional investors have been lowering their property stock holdings. They could continue to do so,” Chen said. “Wise investors should keep their hands off these stocks for now.”