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Taiwan Markets Brace for Big Jolt

September 24, 1999

TAIPEI, Taiwan (AP) _ The next big aftershock from Taiwan’s killer quake may hit the Taipei Stock Exchange, where traders expect shares to fall as far as the rules allow when trading resumes Monday.

The government has kept the market closed since disaster struck early Tuesday, taking more than 2,100 lives.

Since then, many traders around the island could not work because their electronic dealing systems had no power. And there was little information available about damage sustained by listed companies.

With the market preparing to reopen, the extent of the fallout is still far from clear. Analysts say the main question they have is not whether prices will be hurt, but how much.

``It’s clearly going to go down,″ said Peter Kurtz at investment bank Merrill Lynch in Taipei. ``You don’t have a 7.6 magnitude earthquake without having some impact in the economy and the stock market.″

Experts predict that many Taiwanese shares will fall by 7 percent on Monday, the maximum one-day drop allowed under securities regulations.

There has been speculation the government might try to limit any panic selling by temporarily changing the rules to permit a fall of no more than 3 percent, but exchange officials had made no such announcement by late Friday afternoon.

If prices go into a free fall, the government could intervene and buy shares with a so-called ``stabilization fund″ that has been used before to prop up plunging markets.

Up to 300 billion Taiwanese dollars (almost $10 billion) is available in the fund, which includes some public pension money. Officials already have activated the fund several times this year. During the summer, they shored up a foundering market amid heightened Taiwan-China tensions.

For now, all eyes are on Taiwan’s crucial high-technology sector.

Electronics products account for more than half of Taiwan’s exports. The island is a huge provider of semiconductors, making 10 percent of the world’s chips and about 80 percent of the ``motherboards″ used to run personal computers.

The semiconductor industry was shut down by power cuts brought on by the quake. But experts believe the factories sustained minimal damage because most are far from the quake’s epicenter in central Taiwan, a mountainous area where farming is more important.

High-tech executives at some companies were able only Thursday to begin testing equipment. They hope to bring production gradually back online next week.

Analyst Don Floyd at Credit Lyonnais Securities believes many semiconductor shares will fall by the maximum 7 percent when trading resumes _ and possibly for more than one day.

``It’s a question of how many days of limit down,″ Floyd said. ``You’re looking at a substantial impact on earnings.″

Trading could be erratic Monday, since power outages and cut phone lines in parts of Taiwan could make it impossible for some investors to trade.

Taipei’s blue chip Weighted Stock Price Index was at 7,972.14 when the quake struck _ up 19.5 percent on the year as optimism over export earnings outweighed concerns about recent tensions with China.

Any sharp falls could be perceived by some investors as buying opportunities.

Merrill Lynch’s Kurtz said the likely market drop beginning Monday could be far worse than the actual negative impact on Taiwan’s economy.

``It will be overreaction in the first few days,″ he said. ``There will clearly be buyers. A lot of foreign institutions are looking to buy.″

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