Government intervention in the stock market will only prolong the effects of Typhoon Nari and last week's terrorist attacks in the US while discouraging foreign investment, analysts said yesterday.
The Ministry of Finance yesterday reduced the daily downward volatility limit on shares to 3.5 percent from 7 percent through Sept. 28, though the upward limit remains at 7 percent.
"The measure is certainly aimed at reducing the impact of the two major bearish factors on the local market," said Chou Tien-chen (
Chou said that "without the measures, the stock market might rebound more quickly."
On Tuesday, following a two-day closure of the market due Typhoon Nari, Minister of Finance Yen Ching-chang (
Chou said the government's measures run counter to the principles of a free market. The professor said that there shouldn't be any limits on share movements, as the restrictions prevent stocks from reaching their actual market price.
"This limitation stops buyers from buying shares ... and prolongs the time investors need to bring real share prices back to the level they should be at," Chou said.
Another analyst said Taiwan should remove all restrictions on share price movements. Otherwise, foreign investors will likely take their money elsewhere.
"If Taiwan wants to become an internationally-recognized trading place, one of the priorities should be abandoning the current daily limit on share price movements," said the analyst, who declined to be identified.
"Only a stock market with free market mechanisms will attract international investors ... and too much intervention will only scare them away," the analyst said.
The TAIEX yesterday dropped 103.89 points yesterday at the opening, but gradually recovered to close at 3,781.17 -- up 6.55 points.
The long climb back was due to another form of state intervention, analysts said. Government funds may have bought shares to support the stock market.
With investor sentiment affected by two major disasters, the move was to be expected.
"It was a prudent measure by the government to the unknown impact brought by the two main bearish factors," said Neal Stovicek, an analyst of National Securities Corp (
"It has a lot to do with the background and history of the securities market, which varies from market to market."
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