Market watchers predicted that Taiwan's stock market could lose as much as 5% during its first few hours of trading.

The government, though, has decreed that the market will not be allowed to plunge more than 3.5% before trading will be shut down.

Taiwan's stock exchange normally allows a maximum up or down movement of 7%.

The central central bank has the world's third largest stockpile of foreign exchange reserves worth more than $110bn.

Litmus test

"The market will not doubt be swamped with panic selling ... on worries over the transfer of power and uncertainties in cross-strait relations," said Yu Yin-kai of Grand Cathay Securities.

Private share holders are expected to be the first to pull out of the markets. The litmus test, though, will be the behaviour of institutional investors, especially from overseas.

Government intervention

The outgoing Kuomintang government, which ruled the island for 50 years, has repeatedly appealed for calm and said it would intervene on the markets and prop up share prices and the Taiwan dollar if necessary.

The political uncertainty spooked many investors well before the election result was known.

During the past week shares on the Taipei stock market lost 7.1% of their value, 6.6% on one day alone. The drop in prices came despite a massive government intervention believed to amount to 113bn Taiwan dollars ($3.6bn).

So far the Beijing government appears to be taking a wait-and-see attitude. This may not be enough to calm the nerves of investors.

But Bentham Hung of Fuh-Hwa Securities believes that the government will not put "too much effort to support the market unless Beijing issues new threats towards Taiwan".