A probe into the operations of the National Stabilization Fund (
If the government continues to use investigations as a means of intimidating foreign investors, they may decide to pull out of the market, said Francis Yu (
Finance officials launched a probe earlier this week into alleged insider trading at the national stabilization fund. They later named several foreign securities companies -- UBS Warburg, Nomura Securities Co, Morgan Stanley Dean Witter & Co -- for involvement in a massive sell-off on Nov. 16, when the TAIEX dropped 4.9 percent on the day.
Some market pundits have pointed a heavy finger of suspicion at the KMT as being behind that sell-off.
According to Yu, the foreign companies were acting within the scope of their profession by following customer instructions, regardless of the client's identity.
"The brokerage business is the buying and selling of shares for clients. No securities company can say `no' to its clients. If the government wants to question the [trading] behavior of a securities company ... that would be too unreasonable," Yu said.
Analysts say if the new administration wants to seek a scapegoat to blame for the declining market, that too could affect foreign investors' confidence and trigger a pull out from the local stock market, sending the TAIEX even lower.
Real problem yet to be dealt with
One foreign securities company executive who requested anonymity said that while the legitimacy of their brokerage trading was being questioned through the judicial process, the real problem has yet to be dealt with.
"The government has not been taking serious the domestic political uncertainty and the problems in the local financial sector. If the new administration were trying to use [the probe] to warn the securities industry [not to sell shares], that would be counter-productive," the executive said.
Foreign investors have been net-buyers of local shares in the last three months through October, according to the Securities and Futures Commission.
Yesterday was the 11th consecutive day that foreign investors stood on the sell side.
Despite the investigation, selling pressure through foreign securities brokers has not slowed.
Wednesday saw trading in Merrill Lynch Taipei explode at 11:30am as a huge sell order disrupted the peace.
That order, placed on Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics (聯電), was for more than 10,000 lots respectively and worth more than NT$1 billion.
The order was believed to have come from just one client -- one client with enormous resources.
Merrill Lynch declined to comment on the origin of the trade.
Suspected KMT influence
Asked whether the KMT might be using its massive ownership of market shares to "influence" the stabilization fund's effectiveness, one market expert said that such a task would not be difficult.
"Some rumors say that the KMT is involved with trading against the stabilization fund, but I think the identity of the market players is not that important," said Chengchi University professor Norman Yin (
"The problem with the stabilization fund is that its operation is too mechanical and easily detected by the market players. [And also] the managers of the stabilization fund are inexperienced, which attracts numerous players to trade against the fund, especially with the fund's entry in the TAIEX futures market lately. Foreign or local players would certainly take the opportunity to make profit from the game."
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