RPT-China, HK, Taiwan stocks seen falling, then stabilising
By Mishi Saran HONG KONG, March 19 (Reuters) - China, Taiwan and Hong Kong were likely to see their stock markets falling in the near-term in reaction to Taiwan's elections, but their longer term economic outlook depended on political stability, analysts said on Sunday.
They said the election in Taiwan as president the leader of a pro-independence party reviled by Beijing was expected to cause an immediate drop in stock prices, but support from government funds in Taiwan and China and Hong Kong's strong fundamentals could see the markets stabilising soon enough.
"In the short term there will be an impact on the stock market, I think it's safe to say it will drop in more than one country," David O'Rear, regional economist and senior consultant at the Economist Conferences said. Taiwan had sufficient funds to prop up its stock markets and stabilise its currency, should the need arise, O'Rear said. TAIWAN, CHINA SEEN RESCUING THEIR MARKETS Taiwan's finance minister said on Saturday the government would continue to use state funds to ensure stability of the stock market.
Taiwan's main stock index suffered its worst loss last Monday and the government stepped in to use part of a T$500 billion fund on Thursday and Friday to stabilise the market.
Over a two-week period, news from New York markets and Nasdaq was more likely to affect Taiwan than anything else, but on Monday, with U.S. markets still closed, the Taiwan exchange would probably see a big drop, O'Rear said. "But I'm not worried." Y.K. Chan, head of research and economist at CEF GC Brokerage said Taiwan may see some capital flight as fearful Kuomintang investors, who controlled significant amounts, fled to other markets like the United States and to a lesser extent, Hong Kong. "On the other hand, Taiwan may see a honeymoon period," Chan said. "Some optimists may invest in the island, if they (feel) there might be some reform in the economy." Chinese stocks were also expected to fall on Monday as skittish investors hedged their bets, but analysts said the Communist Party would come to the rescue if the tumbles begin and begin to threaten financial stability.
The country's yuan currency was expected to be stable because of a lack of full convertibility and a tight grip by the central bank on the tiny forex market, dealers said.
HONG KONG TOO WILL FALL, BUT REBOUND SOON In Hong Kong too, observers expected Taiwan election results to depress the Hang Seng Index, some said by as much as 1,000 points, but the projected impact was limited.
"The market last week had already been depressed as people disposed of holdings and although the market rebounded on Friday, the turnover was not very big," Ricky Tam, senior research manager at Delta Asia Securities said. "I expect the market to rebound after a short term decline." Analysts did not anticipate major changes immediately in investment patterns in China and Taiwan, but noted that any swell in political turmoil over a long term could hit the region's economy.
"If there is political uncertainty, of course that will impact the economy...if political obstacles cannot be removed, there will be ecomonic consequences," Wang Qi, head of research at J&A Securities said. The region's political landscape would solidify as election excitement ebbed and long term policies were thrashed out. "China has no choice, they have created the situation that makes them extremely unhappy and now they have to live with it," O'Rear said. China has long threatened to invade the island, which it considers a breakaway province, if it declared independence.
TAIWAN'S NEW PRESIDENT NEEDS TO CLARIFY CHINA STAND Wang said the elections had created some measure of instability which could last until president-elect Chen Shui-bian clarified his mainland policy.
"(Chen) avoided the crucial principle: will he give up the Taiwan independence policy, he avoided this critical and basic thing last night," Wang said. Chen, as the leader of an opposition party coming to power, would have his hands full dealing with a legacy of nepotism and cronyism, O'Rear said, drawing a parallel to Japan and South Korea.
"The real challenge is to find the right poeople for his cabinet and (learn) how to wield power" he added. The opposition would also have to learn to work with Taiwan's military and work fast to ensure the right people were making decisions.
After he took office, Taiwan's president elect was unlikely to meddle with the economy, O'Rear said, but Chen has made a strong point about the equitable distribution of wealth.
"This is a non-starter, because Taiwan is one of the most equitable (societies) in the world," he said. It could simply mean a minor increase in social security payments, he said. .
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