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Government waffles on its market policy

The inconsistency of the Ministry of Finance's stock-market policy recently has caused problems for investors. Pundits said the government may have created more problems than it has solved.

The finance ministry decided on Sunday to revise the downward limit on share prices from 3.5 percent to 7 percent in an effort to solve the liquidity problem.

The ministry halved the daily downward limit on share prices from 7 percent to 3.5 percent between Sept. 19 to Sept. 28. The ministry said Typhoon Nari and the threat of war between the US and Middle-Eastern terrorists could cause an inordinate decline in the local bourse. But after three days of trading, the ministry reversed its policy. The reason was that many electronics shares were unable to find buyers last week, especially those of Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics Co (聯電).

"The market has liquidity problems," said Karl Tseng, who manages NT$3 billion in Taiwan stocks at Zurich Securities Investment Trust Co. "We are selling Taiwan Semiconductor and United Microelectronics."

After the ministry decided to change the downward limit back to 7 percent, the liquidity problem was partially relieved. The turnover of Taiwan Semiconductor was over 55 million shares yesterday, compared with only 1.4 million last Friday, and United Microelectronics traded over 81 million shares yesterday, compared with 2.8 million last Friday. According to the TAIEX, total sell orders were over 14 million shares for Taiwan Semiconductor and over 15 million shares for United Microelectronics last Friday.

The inconsistency in government policy also creates other problems.

"We had difficulties quickly notifying our customers in the US and Europe following the ministry's decision," said Neal Stocvicek, an analyst at National Securities (建弘證券).

"When it comes to stock market policy, the government should be much more cautious," said Norman Yin (殷乃平), a finance professor of National Chengchi University. "You should not frequently change the rules. It hurts foreign investors' confidence in the Taiwan stock market by creating the impression that it is not a free market, with the government constantly intervening any time it wishes."

"The Honk Kong government was strongly criticized when it closed its stock market for several days while speculators attacked the Hong Kong dollar in August 1998. Taiwan currently has no such compareable crisis," he said

The TAIEX has declined 15.4 percent between Sept. 11 and last Friday. The declined is the third-largest among Asian stock markets.
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