Analysts say timing key with fund's stock sales

Pundits say that the timing of the National Stabilization Fund (國家安定基金) share disposal is the key to halting further losses.

The NT$500 billion fund -- which was created last year to intervene in the stock market to boost sagging share prices when non-economic factors trigger panic-selling -- lost over NT$900 million on futures trading alone.

The management team of the fund has been under fire in recent days to stop further losses and adopt more professional, private-sector management. According to government officials, one method of achieving that goal is to sell off share holdings in the near future.

But pundits say that market investment should be for the long haul and that some patience is necessary.

"Instead of unloading shares in the near term, or even the next three years as local media described, the stabilization fund should keep its holdings until it makes money," said Liu Kai-pin (劉凱平), president of SinoPro Securities Investment Consulting (弘利投顧). Liu is an investment advisor to several of the four government funds.

"According to previous experience, all the government interventions in local stock market ended up with profits," Liu said. "The reason is simple: the government only intervened when the market was at a relatively low level. When the market fully recovers, which might take three to five years, the government will end up with a profit. It's not a wise decision to sell the shares when their prices are still lower than what you paid for them.

"When the KMT was in power, every intervention ended up with handsome profit. I think history is likely to repeat itself, especially in stock market," Liu said.

Larry Liao (廖瑞雄), a fund manager of ING-CHB Securities Investment Trust Co, agreed with Liu.

"As a fund manager, we always stress that investment in stocks should be on a long-term basis," Liao said. "Since the stabilization fund has probably chosen good stocks, such as Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics Co (聯電), the fund should stick with its investments until the prices make a comeback. If the stabilization fund tries to cut its losses now or unloads shares in the near term, then the loss on the books will become a realized loss. Since the government has no time-frame or interest pressure from banks to hold its shares, the best way is to hold on to them."

Meanwhile, following the Control Yuan's censure motion against the National Stabilization Fund (國家安定基金) on Tuesday, Administrative Vice Minister of Finance Lin Tzong-yeong (林宗勇) said yesterday that he wanted to resign from his position as executive secretary of the fund.

"I do not want to manage the stabilization fund any more. No one would like to carry that kind of responsibility," Lin said at the Legislative Yuan on Wednesday. "When the management committee of the stabilization fund holds its next meeting [in July], I will resign from the post of the fund's executive secretary."

The Control Yuan censured the stabilization fund Tuesday for several deficiencies, including lack of confidentiality on trading and inexperienced fund managers, in addition to the fund's huge losses.