Market watchers take aim at Shea's policy remarks

Market watchers are questioning suggestions by incoming Minister of Finance Shea Jia-dong (許嘉棟) that he won't support extending stock trading hours, saying Shea's stance lacked logic and would hinder the development of Taiwan's equities market.

During a press conference on Friday, Shea said he wouldn't support extending trading hours unless the nation's retail investors -- which account for about 80 percent of the market's turnover -- found something other than stocks to occupy their time.

He said extending hours would create more drawbacks than benefits. Shea also said the market already is too much of a distraction, as many retail investors keep close watch over their investments during working hours -- resulting in less productivity.

In addition, because retail investors account for a good deal of the market's daily turnover, volatility is more pronounced compared to other markets, Shea said. Therefore, the government should encourage more participation by institutional investors, he said, adding that these investors are better equipped to make investment decisions for retail punters.

For the purpose of aiding retail investors, the incoming finance minister said he intends to establish an objective ratings system that would evaluate mutual funds.

But market watchers found some holes in Shea's proposals, saying his ideas would cause more harm than good.

"Shea's logic should be reversed on the issue," said a senior executive of a securities investment house, who declined to be named. "Extended trading hours, on the contrary, could be the only effective way to force retail investors into seeking the advice of institutional investors. With the current system, the bad habits of retail investors will never change."

The executive said the current three-hour trading session between 9am and 12pm affords many retail investors the time to manage their own investments without the help of professional fund managers.

"But once trading hours are extended into the afternoon, either to 2pm or 3 pm, it could create an insurmountable burden for most retail investors, as investors cannot spend that much time on trading if they work 9-to-5," the executive said.

"Even for those who do not work 9-to-5, including night-shift workers, housewives and retired citizens, the longer hours will discourage most people from watching the stock tickers all day," the senior executive said. "Then the choice of most retail investors will be mutual funds."

Taiwan's trading hours weren't always just three hours long. Before the early 1970s, the session lasted from morning to afternoon.

But then the 1973 oil crisis hit and trading volume dried up; the trading session was cut to just three hours and has remained that way ever since.

"Both investors and brokers have been spoiled by the shorter trading hours," said an executive at the Taiwan Stock Exchange. "But if we want to compete with exchanges in our neighboring countries such as Japan or Singapore, we should change it back as soon as we can."

Henry Chen (鄭百亨), managing director of Manulife Funds Direct, noted that Shea's idea was just than -- an idea.

"Shea's comment may not be the final decision of the new administration," Chen said.

"The issue of extending trading hours has a lot to do with foreign institutional investors' interest in the Taiwan market and the competitiveness of the local economy," he said.