State fund helps keep stocks afloat

The nation's main index bounced back from a 20-month low yesterday after the head of the National Stabilization Fund (國安基金) announced plans to intervene in early morning trading.

While the government failed to confirm the monetary value of the intervention, news of the government efforts lifted the benchmark index 119 points.

Analysts say the 6,000 point level is likely to be the temporary bottom, for now.

The management committee of the National Stabilization Fund held a meeting yesterday morning before the opening of the stock market. The committee decided to authorize Yen Ching-chang (顏慶章), the executive secretary of the stabilization fund and deputy minister of finance, to use the fund to intervene in the stock market through Oct. 15, depending on market conditions. The stabilization fund will also step into the futures market for the first time.

This is the third time the fund has intervened in the market since its establishment earlier this year.

Among the sources of the stabilization fund, NT$200 billion is borrowed from the National Treasury through the banking industry, and another NT$300 billion from four government funds.

"The stabilization fund had been activated twice and used NT$54 billion. In order to avoid interfering with the investment activities of the four government funds, the fund will not borrow from the four government funds for now. The remaining NT$146 billion [from the National Treasury] will be enough," Yen said at a press conference held yesterday morning.

The controversy over the Fourth Nuclear Power Plant project has caused the stock market to decline since last week. Most members of the stabilization fund's management committee said the present political and economic situation fits the conditions set by Article 8 of the Regulations of the National Stabilization Fund.

For this reason, the committee decided to authorize the fund to intervene when necessary, according to Yen.

In order to prevent speculators from maneuvering between the futures market and the spot market, Yen said, "the stabilization fund has opened an account in a futures company. This means that the stabilization fund is not only stepping into the spot market, it will also step into the futures market [through stock index futures contracts]."

The TAIEX fell more than 100 points to around 5,900 points in the first 30 minutes of trade yesterday. But after Yen held a press conference at 9:30am, the TAIEX immediately rebounded sharply beginning at 10am, rising 119.37 points to close at 6,143.44 points.

Turnover also increased to NT$87.9 billion, about NT$20 billion more than Monday's NT$67.5 billion.

Market watchers said rises om banking shares indicated that the stabilization fund was buying heavily yesterday. The share prices of First Commercial Bank (一銀) and Hua Nan Commercial Bank (華銀) both rose 7 percent to their upper ceiling for the day.

Electronics shares, including market leaders Taiwan Semiconductor Manufacturing Company (台積電), United Microelectronics Company (聯電) and Acer (宏電), also saw their share prices climb back sharply.

At close, all eight stock sectors had recovered from losses during earlier trading.

"The TAIEX successfully maintained the 6,000-point psychological level yesterday," said Henry Cheng, managing director of Manulife Fund Direct. "If the turnover can stay at around or above NT$80 billion for at least two more trading days, we can assume that 6,000 points is the bottom in the near term, provided no more bearish news comes from the Cabinet over its ambiguous policy direction."