The stock exchange regulator’s plan to lift the local bourse’s daily trading price fluctuation limit from 7 percent to 10 percent would be in line with international practice, allowing public companies to be traded at prices that better reflect their growth fundamentals, pundits said yesterday.
However, the move is also sure to trigger selling pressure in the short term before the nation’s equity investors become accustomed to a greater fluctuation range, they said.
“Any such liberalization measures will help beef up the local bourse’s international competitiveness since major markets in the world impose no daily trading limit,” said Polaris Securities Co (寶來證券) vice chairman Huang Chi-yuan (黃齊元) by telephone, who has long advocated turning the TAIEX into the “NASDAQ of Asia.”
Calling the Taiwan Stock Exchange Corp’s (TWSE, 台灣證交所) move “too little, too slow,” Huang said the local bourse has long been a laggard behind its peers in Asia.
An extended trading range will force equity investors to pay more heed to a company’s growth fundamentals when buying or selling shares, said Huang, who is also chairman of Taiwan M&A and PE Council (台灣併購與私募協會).
Currently, Taiwan’s daily trading limit of 7 percent trails Shanghai’s 10 percent and South Korea’s 15 percent, while stock markets in the US, the UK, Germany and Hong Kong put no daily limit on price fluctuations.
TWSE chairman Schive Chi (薛琦) said on Thursday that the regulator is in favor of raising the range of the daily fluctuation band for stocks, beneficiary certificates, Taiwan depositary receipts and convertible bonds after surveys confirmed support from both domestic securities firms and institutional investors.
However, the proposal is subject to a final approval from the Financial Supervisory Commission (FSC), which vetoed the proposal once before.
Expressing concerns, FSC Vice Chairman Wu Tang-chieh (吳當傑) said late on Thursday that careful deliberations would be required when reviewing the proposal since retail investors make up as much as 70 percent of the local bourse’s trading activities, local media reported. He said that markets that draw mostly retail investors would be vulnerable to a bigger trading limit range, the report said.
Retail investors make up 22 percent of the Japanese market, 37 percent in Hong Kong, 15 percent in Germany, 14 percent in the UK and 15 percent in France, the FSC said.
Meanwhile, Kuo Min-hua (郭敏華), associate professor of finance at Shih Hsin University, was neutral about the proposal, saying there are pros and cons to the idea.
“Any liberalization move will come with a price,” she said yesterday. “In the case of an extended trading range; investors will have to endure a greater price fluctuation upward or downward.”
It is also too premature to say whether the market’s upward momentum would be boosted if the trading cap were lifted, she said.
David Chu (儲祥生), chairman of Hua Nan Securities Co (華南永昌投顧), warned that investors would likely go through a painful transitional period in a month or two to get used to a 10 percent daily trading range.
“The rising cost for investors to close shares trading at a 10 percent limit-up will force cautious investors to dump shares for quick profits, which may drive up selling pressures in the short run,” he told the Chinese-language United Evening News on Thursday.
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