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Cablegate: Middle East Tension Impacts Financial Markets

VZCZCXRO2635
RR RUEHGH
DE RUEHIN #2433 2000011
ZNR UUUUU ZZH
R 190011Z JUL 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1156
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3335
RUEHBJ/AMEMBASSY BEIJING 5433
RUEHUL/AMEMBASSY SEOUL 7940
RUEHGP/AMEMBASSY SINGAPORE 6508
RUEHKO/AMEMBASSY TOKYO 7836
RUEHML/AMEMBASSY MANILA 9758
RUEHJA/AMEMBASSY JAKARTA 3887
RUEHKL/AMEMBASSY KUALA LUMPUR 3526
RUEHHI/AMEMBASSY HANOI 3096
RUEHBY/AMEMBASSY CANBERRA 4244
RUEHWL/AMEMBASSY WELLINGTON 1528
RUEHHK/AMCONSUL HONG KONG 6636
RUEHGH/AMCONSUL SHANGHAI 0242
RUEHGZ/AMCONSUL GUANGZHOU 9423

UNCLAS TAIPEI 002433

SIPDIS

SIPDIS
SENSITIVE BUT UNCLASSIFIED

STATE PLEASE PASS USTR
STATE FOR EAP/TC, EAP/EP
USTR FOR ALTBACH
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
TREASURY PLEASE PASS TO OCC/AMCMAHON

E.O. 12958: N/A
TAGS: EINV EFIN ECON TW
SUBJECT: Middle East Tension Impacts Financial Markets


1. (U) Summary: The flare-up between Israel and Lebanon has
impacted stock and foreign exchange (FX) markets in Taiwan. Like
other Asian economies, on July 17, Taiwan experienced significant
capital outflow, stock price plunges, and currency depreciation.
End summary.

Currency Depreciation
---------------------

2. (U) Increased tension in the Middle East has caused capital to
flow out of Asian markets mainly to the United States. The NT
dollar (NTD) depreciated 0.59% to close July 17 at NTD32.86 per US
dollar (USD). The NTD's 0.59% depreciation was comparable to the
drop of 0.78% for the New Zealand Dollar, 0.63% for the Singaporean
Dollar, 0.69% for the Philippine Peso, and 1.01% for the Japanese
Yen. The NTD further depreciated to NTD32.96 per USD on the morning
of July 18 but rose back to the NTD32.86:USD1.00 level in the
afternoon trading session.

Stock Market Plunges
--------------------

3. (U) Taiwan's stock price index dropped 2.65% to close July 17 at
6,257.8 points, a seven-month low. Stock prices also dropped 3.6% in
India and 1.4-1.8% in Singapore, Thailand and Indonesia. Stock
prices plunges have driven investment funds from stock markets to
bond markets both in Taiwan and the United States. Taiwan stock
price index rose 0.4% to close July 18 at 6,285.31 points. The
crisis has caused foreign portfolio investors to sell NTD5.67
billion (USD174 million) more stocks than they sold on July 17, and
their net stock sales increased to NTD6.82 billion (USD210 million)
on July 18.

FX Official Expresses Concern
-----------------------------

4. (SBU) The fighting between Israel and Lebanon concerns George
Chou, Director General of Taiwan's Central Bank of China (CBC)
Foreign Exchange Department. Chou was particularly concerned that
Israel and Lebanon ignored the G8's joint statement on July 17
(Taipei time) to request for a cease fire. Chou told AIT that stock
and FX markets would worsen if Iran is drawn into direct
participation in the Israel-Lebanon confrontation.

YOUNG

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