Sun, Sep 18, 2005 - Page 8 News List

Foreign investors appear muddled

By Huang Tien-lin 黃天麟

Taiwan's stock market remains weak and it seems impossible to reinvigorate it. This has resulted in severe losses for individual investors over the past few years. The same seems to hold true for foreign investors. The situation in other Asian countries is, however, very different.

For example, Singapore's stock index grew by 21.64 percent last year, South Korea's by 27.25 percent, the Philippines' by 25.06 percent and Japan's by 14.98 percent, while Taiwan's stock index only grew by 4.23 percent. This means that most individual investors in Taiwanese shares would have taken a loss last year. So far this year the South Korean stock market has outperformed others in the region with a growth of 20.9 percent. Japan's stock market index has grown by 10.5 percent, the Philippines' by 6.2 percent, Thailand's by 4 percent and India's by 18.2 percent. Taiwan's stock market index has fallen by 1.7 percent, which means even more people lost money compared to last year.

The odd thing is that foreign investors have bought Taiwanese shares worth US$10.92 billion (approximately NT$350 billion) this year, making Taiwan second only to Japan as a target for foreign investors in Asia. Foreign investors have only invested US$840 million in South Korean shares so far this year.

Beginning early this year, foreign investors have taken a positive view of Taiwan's stock market. The asset management company JP Morgan even predicted that the stock market index might break through 10,000 points. But reality and expectations run counter to each other. Because the New Taiwan dollar once again has fallen to NT$32.75 to the US dollar, the foreign investors who invested a total of NT$630 billion this year and last are now caught in the awkward situation of losing money on both the stock and forex markets.

This begs the question why foreign investors who see themselves as clever investors are losing money in Taiwan.

First, as they have always told the government, the more Taiwan deregulates, the better the economy will do. As a result, Taiwan today has the freest economy in Asia -- Singapore and Hong Kong excluded -- and it is far freer than South Korea or Japan. But the more Taiwan deregulates, the less power it has to resist China's attraction. This is intensifying the problem with Taiwanese capital flowing out of the country and causes the stock market's lackluster performance.

Second, they always use a Western approach when analyzing the economic relationship between Taiwan and China in the belief that investing in China will help develop Taiwan's economy. Their analyses are only concerned with immediate individual economic benefits and completely fail to understand that Taiwan's annual investments in China on average make up 4 percent of Taiwan's GDP. This is 130 times more than the US' 0.03 percent of GDP, and about 20 times more than South Korean investments in China.

In the long run, this makes for an extremely bearish outlook on the local stock market, but that is unfortunately not something that foreign investors have discovered.

Third, they always see direct links, charter flights, harmonious co-existence and other things that may promote cross-strait exchanges as beneficial to Taiwan. As a result, all the bad news that ought to spell a bearish future for Taiwan's economy are interpreted as bullish news. This completely ignores the huge size difference between Taiwan and China.

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