Taiwan Stocks Post Worst Two-Day Drop in Two Months on Economy

By Chen Shiyin

Dec. 23 (Bloomberg) -- Taiwan’s stocks fell, sending the key index to its biggest two-day drop in almost two months, on concern the global economic recession is hurting demand for exports. The island’s dollar also declined for a third day.

Hon Hai Precision Industry Co., the world’s largest contract electronics manufacturer, slumped 3.9 percent, leading losses before the release of government reports today that may show exports and industrial production fell in November. The currency slipped as much as 0.7 percent, after declining by the most in seven years yesterday when a report showed that the island’s jobless rate rose to the highest in more than four years.

“The economic data is evidence that Taiwan’s economy will face a tougher time in the fourth quarter of 2008 and the first quarter of next year before we see a recovery,” said Michael On, president of Beyond Asset Management Co. in Taipei. “Demand is weak and manufacturers are undergoing inventory adjustment, so that’s hurting stocks right now.”

The Taiex index dropped 129.68, or 2.9 percent, to 4,405.86, the lowest close since Dec. 5. The benchmark measure, which yesterday slumped 3.4 percent, rounded off its largest consecutive retreat the two days ended Oct. 27.

Taiwan’s dollar traded at NT$33.033 as of 11:58 a.m. local time, after falling to NT$33.155, the lowest level in the past week, according to Taipei Forex Inc. The currency weakened 1.2 percent yesterday, the steepest drop since May 28, 2001.

Hon Hai retreated 3.9 percent to NT$61.50, its lowest close since Dec. 5. The shares slumped 6.6 percent yesterday after the company said it’s cutting jobs globally amid the recession. AU Optronics Corp., Taiwan’s largest liquid-crystal display maker, dropped 5.2 percent to NT$21.80, the largest loss since Nov. 17.

Export Orders

Stocks fell before the release of November export orders and industrial production at 4 p.m. local time. The indicator of actual shipments over the next one to three months probably fell 13.6 percent from a year earlier, the biggest slide in seven years, according to a Bloomberg survey.

Industrial production fell 15.7 percent in November from a year earlier, also the biggest drop since September 2001, a separate survey showed.

Powerchip Semiconductor Corp., a maker of computer-memory chips, declined 6.9 percent to NT$3.67 after the Economic Daily News reported the company applied to the government for a bank- loan rollover and financial aid.

Taiwan’s Taiex has dropped 48 percent this year, poised for its worst year since 1990, as the government on Nov. 20 forecast the economy will enter its first recession in seven years. The measure is valued at about 8.9 times reported earnings, down from 20 times at the start of 2008, Bloomberg data shows.

‘Offload Risky Assets’

The economic slump prompted Taiwan’s central bank to slash its benchmark interest rate by the most in 26 years earlier this month. The island has cut borrowing costs five times in two months, joining central banks from the U.S. to China in lowering rates.

“The central bank is taking the opportunity of thin trading activity this week to push the currency to a more competitive level for exports,” said Christy Tan, a currency strategist at Bank of America Corp. in Singapore. “The market thinks that the worst is not over yet. The natural reaction is to offload risky assets.”

A Statistics Bureau report yesterday said the seasonally adjusted jobless rate climbed to 4.62 percent in November, the highest since February 2004.

Cathay Financial Holding Co., the island’s largest listed financial-services company, fell 4 percent to NT$33.80, the largest loss since Dec. 12. Chinatrust Financial Holding Co., Taiwan’s fourth-largest financial-services company, dropped 3.7 percent to NT$12.90.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net.