Bloomberg News

Taiwan’s Stocks, Currency Slump on Tax Fears

April 04, 2012

The benchmark Taiex index sank 2.8 percent to 7,543.85 as of 9:39 a.m. in Taipei. Photographer: Maurice Tsai/Bloomberg

The benchmark Taiex index sank 2.8 percent to 7,543.85 as of 9:39 a.m. in Taipei. Photographer: Maurice Tsai/Bloomberg

Taiwan’s stocks slumped the most since December and the currency weakened after the stock exchange chairman said the island is likely to impose a capital- gains tax on share transactions.

The benchmark Taiex index sank 2.1 percent to 7,595.47 as of 10:24 a.m. in Taipei, poised for the biggest decline since Dec. 19. Taiwan’s currency weakened 0.2 percent to NT$29.53 per dollar, the largest drop since March 12. Markets were closed yesterday for a holiday.

There’s a “99 percent” chance that Taiwan will introduce the tax to address social inequalities and to raise tax revenues, Schive Chi, chairman of Taiwan Stock Exchange Corp., said in an April 3 interview. The Taiex has slumped 5.6 percent the past five trading days since the Economic Daily reported the government was evaluating the tax.

“There’s a lot of displeasure among investors,” Eric Chou, who helps manage around $1.8 billion at Jih Sun Securities Investment Trust Co. in Taipei, said in a telephone interview. “The capital gains tax proposal is negative to the market. There will be more talks this afternoon and there’s still a lot of uncertainty.”

The government’s tax overhaul panel is discussing today whether to reinstate the tax. Deputy Finance Minister Tseng Ming-chung didn’t immediately return three phone calls seeking comments. The Ministry of Finance is aiming to reach a decision in a month, Finance Minister Christina Liu said in a reply to questions from lawmakers at a meeting in parliament on April 2.

Certain Reaction

Taiwan has exempted securities transactions from capital- gains taxes since Jan. 1, 1990, according to the stock exchange’s website. The tax was set aside after a year because of widespread evasion and the government has contemplated reintroducing it since at least 1993. During elections earlier this year, President Ma Ying-jeou and the opposition advocated the tax to help narrow a wealth gap among Taiwan’s population.

“The market will certainly react to this but I think that is because how the capital gains are going to be taxed is still not clear,” Schive, chairman of Asia’s seventh-largest stock market, said in an April 3 interview in Boao, China.

Taiwan Semiconductor Manufacturing Co., the Taiex’s biggest member by index weighting, sank 1.7 percent to NT$83.60. Hon Hai Precision Industry Co. (2317), the gauge’s second-largest constituent, lost 0.9 percent to NT$109.

Losses in Taiwan’s dollar may halt at NT$29.60 as exporters will probably sell U.S. dollars at this level, according to Tarsico Tong, a currency trader at Union Bank of Taiwan in Taipei. At NT$29.45, importers would buy the greenback, he said. The yield on the benchmark 10-year government bond was unchanged at 1.27 percent after falling one basis point earlier.

Overseas Investors

“The Taiwan dollar is falling because the stock market is lower,” Tong said. “The government is talking about imposing the capital-gains tax.”

In 1988, when the plan for a tax was discussed, stocks fell for 19 consecutive days, dropping 33 percent in a month, Schive said. Shares are unlikely to slump as much this time because more companies are traded on the bourse and there’s a larger proportion of overseas investors, he said.

Foreign funds bought $127 million more Taiwan stocks than they sold this week through April 3, adding to this year’s net purchases of $5.1 billion, according to exchange data.

The Taiex has rallied 7.4 percent this year on speculation of a U.S. economic recovery and as Ma’s re-election as president on Jan. 14 fueled optimism the island would strengthen economic ties with China. The gauge is valued at 14.6 times estimated profit, a 40 percent premium to the MSCI Emerging-Markets Index (MXEF)’s 10.5 times, data compiled by Bloomberg show.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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