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The World BusinessMirror
Friday, January 15, 2016
news@businessmirror.com.ph
Stocks plunge on fears of slowing global growth
TAIWAN’S opposition Democratic Progressive Party presidential candidate Tsai Ing-wen (center) cheers supporters from a truck on Sunday as she parades through the streets of Tainan, Taiwan, prior to the nation’s presidential election on Saturday. Voters on the self-governing island democracy appear set to elect a new president whose party opposes Beijing’s goal of unification between the sides. AP/WALLY SANTANA
CHINA, HOUSING, BIOTECH
WHAT’S AT STAKE IN TAIWAN’S ELECTION A
PEOPLE walk past an electronic stock board of a securities firm in Tokyo on Thursday. Asian stock markets sank across the board on Thursday as pessimistic sentiment following a dive in oil prices and US-share prices prevailed over data showing economies on the mend. AP/EUGENE HOSHIKO
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ASHINGTON—US financial markets plunged on Wednesday amid new fears that slowing global growth will derail a domestic economy long overdue for a recession.
After starting the day slightly higher on better-than-expected trade data from China, the major US stock indices began tumbling and continued falling throughout the day. The sliding price of oil greased the downturn in a sign that investors see demand for energy falling because economies around the world are decelerating. The Dow Jones industrial index dropped 364.81 points, or 2.2 percent, to 16,151.41. The Standard and Poor’s (S&P) 500 index fell 48.40 points, or 2.5 percent, to 1,890.28. The losses in the technologyheavy Nasdaq were even worse. It plummeted nearly 160 points, or 3.4 percent, to 4,526.06. Each of the three indices hit their lowest levels since late September in a rout triggered this year by economic and market troubles in China. “It’s a very uncertain time,” said John Lonski, chief economist at Moody’s Capital Markets Research Group. “There are too many investors out there who believe the market has already peaked, and when they have an opportunity to exit, they do so pronto,” he said. The nervousness comes with a
volatile start to 2016. The Nasdaq is down 9.6 percent this year, while the S&P 500 and Dow each have fallen more than 7 percent. Each of the three major US indices are in or nearing correction territory, meaning a decline of 10 percent from their recent highs. There didn’t appear to be a specific trigger for Wednesday’s sell-off, which came in the wake of gains in some major markets in Asia and Europe. But the continued slide in oil prices didn’t help. International Brent crude prices dropped 2 percent and briefly fell below $30-a-barrel for the first time since 2004. That came a day after US benchmark West Texas intermediate crude oil slipped temporarily below $30-a-barrel for the first time since 2003; it edged up 4 cents to close on Wednesday at $30.42 a barrel. Some analysts think the prices could keep falling to near $20-abarrel. Although the lower prices help consumers and businesses, they are a flashing warning sign for investors because they signal weak demand. Slower growth in China and elsewhere has fueled those dropping prices as reduced demand from
364.81 48.40 Points dropped in Dow Jones industry has exacerbated a glut in worldwide petroleum supplies. The economic story has been different in the US. Recent data have been upbeat. Last week, the Labor Department reported the economy added 292,000 net new jobs last December, much more than expected. And in his State of the Union address on Tuesday, President Obama declared: “The United States of America, right now, has the strongest, most durable economy in the world.” But those jobs figures don’t indicate where the economy is headed, Lonski said. And the recovery from the Great Recession is now approaching seven years, an unusually long period of growth without a downturn. “The market just strongly senses that the recovery is losing momentum,” he said. The risk of a recession this year has risen to about 20 percent, he said. Investors also are concerned that the Federal Reserve has begun increasing a key short-term interest rate. Higher borrowing costs make it more difficult for businesses to expand, which can be a drag on growth.
Points fell in Standard and Poor’s Central bank policymakers nudged up the rate by 0.25 percentage point in December after having kept it near zero for seven years to try to boost the economy. They said the recovery was strong enough to warrant the hike and signaled a slow increase this year. On Wednesday, Eric Rosengren, president of the Federal Reserve (the Fed) Bank of Boston, reiterated the intention of central bank policymakers to decide on future rate hikes based on economic conditions. “While monetary policy should not overreact to short-term, temporary fluctuations in financial markets, policymakers should take seriously the potential downside risks to their economic forecasts,” he told the Greater Boston Chamber of Commerce. But the Fed might need to send stronger messages to try to calm investors’ nerves, Lonski said. “Perhaps the market is just concerned that the Fed policymakers are not indicating sufficient sensitivity to the worsening outlook for the global economy,” he said. “The best thing the Fed could do to improve sentiment is simply state the obvious—the global economy does matter.” Los Angeles Times/TNS
Dirty medical scopes linked to 25 disease outbreaks
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CORES of hospital patients treated with medical scopes were infected with potentially deadly bacteria because of repeated failures by manufacturers, regulators and hospitals to report outbreaks, according to a US Senate investigation released on Wednesday. The investigators said they had found 25 outbreaks linked to a device known as a duodenoscope, far more than previously reported. And they said that numerous flaws in the federal government’s oversight of medical devices are continuing to put patients at risk “with life-threatening consequences.” The new 301-page report confirms
conclusions in a series of Los Angeles Times stories last year, which reported that Olympus Corp., the leading maker of the device, knew of the potential flaws in the scope but failed to alert American hospitals or regulators. “Patients should be able to trust that the devices they need for treatment are safe and effective,” said Democrat Sen. Patty Murray of Washington, who initiated the probe after dozens of patients were sickened at a Seattle hospital. “Unfortunately this investigation makes clear that current policies for monitoring medical device safety put patients at risk, and in this case, allowed tragedies to oc-
cur that could have, and should have, been prevented,” she said. The conclusions came in an investigative report by the minority staff of the Senate committee on health, education, labor and pensions. It concluded that executives from the Japanese firm, which sells 85 percent of the duodenoscopes used in American hospitals, were aware that three independent investigations had questioned whether the design of the $40,000 scope made it extremely difficult to clean. The company received the first of those reports in June 2012. But Olympus—and the federal Food and Drug Administration (FDA)—did not
issue warnings about the potentially lethal problem with the device until February 2015 after the Times reported the superbug outbreak at University of California Los Angeles’s Ronald Reagan Medical Center. Seven patients were sickened, including three who died. From 2012 to 2015, investigators said that at least 141 patients in nine US cities were infected. “The faith that patients, doctors, hospitals and public health officials placed in Olympus to thoroughly test their cleaning instructions before putting devices in the marketplace was clearly misplaced,” the investigators wrote. Los Angeles Times/TNS
S many as 18.8 million voters will head to the polls in Taiwan on Saturday to pick a new government. The result, which could see the opposition Democratic Progressive Party (DPP) capture both the presidency and the legislature for the first time, could make history, shake markets and aggravate an old point of strife between China and the US. The election pits DPP Chairwoman Tsai Ing-wen—making her second attempt to become the island’s first female leader— against New Taipei City Mayor Eric Chu, head of the ruling Kuomintang (KMT). The KMT is fighting to stay in power and protect President Ma Ying-jeou’s legacy of flourishing ties with Communist Party leaders in Beijing amid local dissatisfaction over slow growth and stagnant wages. The DPP is also trying to secure a majority on the 113-seat Legislative Yuan and leave the KMT and its allies shut out of power for the first time since Chiang Kai-shek led them across the Taiwan Strait during the the Chinese civil war. While Tsai pledges to maintain relations with Taiwan’s long-time rival, the DPP charter officially supports independence from the Mainland, something Beijing would consider fighting words. Tsai promises to build a professional government focused on things such as reining in housing costs and expanding the biotechnology industry. Chu, who only entered the race after the KMT abandoned its first nominee last October, has vowed more policies to help the younger generation get a greater share of Taiwan’s economic success. Here are some ways this changing of the guard might affect business:
China trade
THE mainland buys about 40 percent of Taiwanese exports, with trade supported by 23 cross-strait agreements since Ma came to power. A deal that would open the two sides to each others’ services sectors has been languishing since student protesters wary about increased China ties occupied the legislature in 2014. Strong ties mean Taiwan has felt China’s slowdown more acutely than other economies. ■ Tsai says she’ll expedite oversight legislation to ease concerns about such pacts, although she hasn’t accepted the “1992 consensus” the KMT and Communist Party describe as essential to maintaining ties. Under it, each side has agreed they’re part of “one China,” even if they disagree on what that means. ■ Chu supports expanding Taiwan’s markets with trade
deals, while opposing Mainland investment in Taiwan’s sensitive microchip- design industry. Stocks to watch: CTBC Financial Holding Co., Fubon Financial Holding Co., SinoPac Financial Holdings Co. Analysis: Vincent Yang, a fund manager for Franklin Templeton SinoAm, says a DPP win would change the nature of crossstrait relations, but not bring them to a halt. A closely divided legislature would raise the prospects for gridlock, Yang says.
Housing costs
TAIWAN’S home prices have more than doubled over the past decade, while household incomes are growing by just more than half a percent a year. The struggle to buy a home was a central issue during Taiwan’s 2014 student protest, prompting then-Premier Jiang Yi-huah to urge a reduction in the home-price-to-income ratio in urban areas. ■ Tsai proposes building more affordable housing to rent to younger people, the elderly and other needy groups. ■ Chu backs providing rent subsidies to the young and disadvantaged, as well as giving incentives to owners to rent out vacant properties. Stocks to watch: Huaku Development Co., Chong Hong Construction Co. Analysis: Masson Li, a general manager at Taishin Securities Investment Advisory Co., says Tsai’s housing plans may create more supply than demand and exacerbate a slowdown in the property market.
Boosting biotech
BUOYED by Taiwan’s well-educated workforce and access to mainland China’s huge market, Taiwan’s biotechnology sector has been a bright spot in the economy. Industry stocks have gained 1.9 percent over the past three months, the best among 28 subgroups on Taiwan’s benchmark Taiex gauge, which has fallen 8.7 percent. ■ Tsai made biotech one of five focus industries and last November named a researcher in epidemiology and genomics, Chen Chien-jen, as her running mate. She wants the government to boost resources to support the development of drugs and medical instruments and materials. ■ Chu has pledged to develop the biotech industry as way to attract overseas consumers and increase the number of highwage jobs. Stocks to watch: Formosa Laboratories, United Orthopedic Corp., Pacific Hospital Supply Co. Analysis: Chu Yen-min, president of KGI Securities Investment Advisory Co., says the proposals support investments in pharmaceutical firms. Bloomberg News