Stock losses likely to hit GDP growth

Analysts worry that the mounting losses in the stock market among individual investors may have deeper implications for the domestic economy.

Chu Chi-cheng (朱志成), a chief investment strategist at Marbo Securities Investment Consulting (萬寶投顧) estimates that the average individual investor has lost NT$283,000 since May.

Overall, the share market has lost NT$6.5 trillion in value after peaking in early May.

Some analysts estimate that if one considers the estimated six million active stock trading accounts in Taiwan, the average investor could have lost NT$1 million since May.

Some are concerned about the psychological implication of their financial losses.

"When people lose so much money, it changes their behavior," said Mai Kai (馬凱), a research fellow at the Chung Hua Institute of Economic Research (CIER, 中經院).

The biggest victims are those who have used stocks as collateral to gain further financing for stock investments.

"I have lost half a million on one stock alone -- Quanta Computer," said a middle-aged woman surnamed Lin, sitting on a trading floor of Taiwan Securities yesterday. "Now I just sell whenever the market rebounds for five consecutive days."

The predicament typifies millions of Taiwanese who are seeing their fortunes evaporate in the nation's financial markets. While analysts believe local individual investors -- which account for 85 percent of the market -- are somewhat irrational, some express a fundamental understanding of market mechanisms.

"The market is basically reflecting the political situation in Taiwan and the drop in the US NASDAQ," said one individual investor. "But the problem now is that the US economy seems set for a hard landing."

Analysts are baffled by the importance of the stock market in Taiwan, as it is one of the few countries in the world where national policy can be held hostage by the jitters in the stock market.

"Why is the stock market is so important in Taiwan?" asks Wu Yu-shan (吳玉山), a professor of political science at the National Taiwan University. "This would be a good topic for a research project."

The situation is rendered more complicated by the government's active participation in the market. "The implications are quite broad," Chu said.

Economists say that the sharp fall in the market is negatively impacting private consumption, which drives over 60 percent of the GDP. Last week, the government shelved a consumer confidence report, citing "irrational expectations" by consumers.

"The stock market exaggerates the good, the bad and the ugly," said Damian Gilhawley, economist at China Securities (中信證券). "It creates a vicious cycle."