Shares may drop further

Minister of Finance Yen Ching-chang (顏慶章) said the daily downward volatility limit of 3.5 percent will be restored to 7 percent today, and the securities transaction tax rate will not be temporarily lowered.

Yen made the comments yesterday morning at the Legislative Yuan.

After a legislator proposed that the finance ministry decrease the securities transaction tax rate for several months, Yen said, "such a measure would run counter to the [government's] long-term taxation system. My conscience says not to do it."

Impacted by bearish news at home and abroad, the TAIEX dropped 168.87 points and closed at 6,040.55 points yesterday. As many as 321 shares declined 3.5 percent, the temporary maximum limit set by regulators. Turnover was extremely low -- NT$24.7 billion -- an amount unseen since last year's 921 earthquake.

Analysts worry that the TAIEX could fall below the psychological 6,000 point level once again.

Meanwhile, the new finance minister hinted that the National Stabilization Fund (國安基金) might be used to intervene in the market today, based on approval from the fund's committee.

Because the Dow Jones Industrial Average and NASDAQ index declined 44 and 115 points respectively on Tuesday, almost all Taiwan electronics shares dropped 3.5 percent at the market's opening yesterday, with the TAIEX losing 138.99 points. The daily downward volatility limit will be restored to 7 percent today. The 3.5 percent limit was placed on the index for the last five trading days after former Premier Tang Fei's (唐飛) sudden resignation last week.

The TAIEX dropped 195.44 points, or 3.15 percent, at around 11am yesterday, its lowest point of the day, and then slightly recovered before closing. Seven of the eight sector indexes declined yesterday, with electronics and finance shares dropping 2.94 and 2.74 percent, respectively. Yen said his authorization to access the stabilization fund is valid until Saturday. If there were to be any extension, the fund's management committee would have to hold another meeting to make the decision, Yen said.

"As only one of the 13 members on the committee, I'm not entitled to make the decision," Yen said. "The fund's intervention period is temporary, otherwise use of the fund would become too routine. However, the committee may still decide to use the fund after Oct. 15."

After legislators questioned Yen on the amount the stabilization fund has invested so far, Yen said, "Up to the end of June, the stabilization fund has invested NT$54.2 billion in the market, with current losses standing at NT$6.78 billion.

"In recent weeks, less than NT$100 billion has been used from the fund."

The current ceiling for the stabilization fund is NT$200 billion, with another NT$300 billion available from four other government funds. This means that less than half of the NT$200 billion has been used so far.

Yen also hinted that since he was at the Legislative Yuan all morning yesterday, the stabilization fund did not intervene in the market before 11am.

Market watchers said that since the 6,000 point level is important psychologically, the stabilization fund is likely to do its best to hold the TAIEX above 6,000 points.

"There were no solid measures taken to revive the stock market and the economy since the new Cabinet was formed, especially after the economic task force's meeting last Monday," said Henry Cheng (鄭百亨), managing director of Manulife Fund Direct. "This has weakened investor confidence."