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Sunday, 19 March, 2000, 14:32 GMT
Taiwan market jitters
Chen Shui-bian campaigning days before the election
The election of Chen Shui-bian is expected to scare many investors
Taiwan's financial markets are expected to go into free-fall on Monday after the election of pro-independence candidate Chen Shui-bian as president.

But the outgoing government has announced that it will step in to prevent a market melt-down.

Obviously we're going to expect a sell-off ... The question is how many days of steep selling we're going to see

Peter Kurz, Merrill Lynch
Investors fear increased tensions across the Taiwan Strait, because of recent threats by China that it would use military force to counter any move towards Taiwan's independence.

Market watchers predicted that Taiwan's stock market could lose as much as 5% during its first few hours of trading.

The government, though, has decreed that the market will not be allowed to plunge more than 3.5% before trading will be shut down.

Taiwan's stock exchange normally allows a maximum up or down movement of 7%.

Stock board outside Taipei stock exchange
Analysts say the Taipei stock index could drop below 8,000 points
Central bank governor Perng Fai-nan urged the public not to panic. "We will fully supply market demand for US dollars," he said.

The central central bank has the world's third largest stockpile of foreign exchange reserves worth more than $110bn.

Litmus test

"The market will not doubt be swamped with panic selling ... on worries over the transfer of power and uncertainties in cross-strait relations," said Yu Yin-kai of Grand Cathay Securities.

Private share holders are expected to be the first to pull out of the markets. The litmus test, though, will be the behaviour of institutional investors, especially from overseas.

Government intervention

The outgoing Kuomintang government, which ruled the island for 50 years, has repeatedly appealed for calm and said it would intervene on the markets and prop up share prices and the Taiwan dollar if necessary.

The political uncertainty spooked many investors well before the election result was known.

During the past week shares on the Taipei stock market lost 7.1% of their value, 6.6% on one day alone. The drop in prices came despite a massive government intervention believed to amount to 113bn Taiwan dollars ($3.6bn).

So far the Beijing government appears to be taking a wait-and-see attitude. This may not be enough to calm the nerves of investors.

But Bentham Hung of Fuh-Hwa Securities believes that the government will not put "too much effort to support the market unless Beijing issues new threats towards Taiwan".

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See also:

19 Mar 00 | Asia-Pacific
Taiwan enters new political era
19 Mar 00 | Asia-Pacific
Lee Teng-hui accepts election blame
13 Mar 00 | Business
Taiwan stocks plunge
19 Mar 00 | Asia-Pacific
In Pictures: Taiwan election
19 Mar 00 | Asia-Pacific
Taiwan media greet victory for democracy
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