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Bourse feels effects of slowing economy

The continued lackluster performance of the stock market has been in sharp contrast to the strong performance of markets in South Korea, Japan, India and other Asian nations.

Compared with a 32 percent increase in South Korea, 29 percent in India, and 14.5 percent in Japan, Taiwan's market has fallen by about 3.48 percent recently. Experts believe this is caused by international factors, the trading mechanism, political issues, the economy, capital outflow and a lack of investor confidence.

Let's take these in turn.

Taiwan's weak market is not caused by any international factors, since Japan and South Korea continue to experience high growth. Moreover, foreign capital inflow into the market has reached NT$300 billion this year alone.

The weak market is not a result of the trading mechanism, which has been improved over 40 years and is fully developed. If it hadn't done this, Taiwan couldn't have established itself as a target for international investors.

Some people say that political turmoil inevitably weakens the stock market, but this has not been the case in South Korea, which has seen economic growth despite presidential recalls and other issues. Another example is the peak the TAIEX hit last year, at 7,135 points, despite intense strife over the nation's title, the Constitution and referendums. Clearly, while the domestic political environment might be a factor, it is certainly not decisive.

The crux of the matter lies in domestic economic concerns. Taiwan has not met its economic forecasts this year. Industrial and manufacturing production in the first half of this year fell 0.03 percent and 0.543, respectively, from the same period last year. In March, the proportion of manufacturing production done abroad jumped to 37.25 percent, with the figure for information and communication products rose to 73 percent. A substantial gap has appeared between the quantity of export orders and actual exports.

The commercial environment has also become less favorable as Taiwan seeks to compete by relying on cheap labor and mass production at the expense of upgrading its industries. This has cut into profits and affected share prices, and will hurt competitiveness.

The sluggish economy has caused capital outflow, which has in turn affected competitiveness. According to a study conducted by Morgan Stanley Investment, over the past five- and-a-half years, driven by free-trade policies, personal and fund investments in overseas securities have risen to US$77 billion.

According to a report published by a US think tank, most of the foreign investors in China come from Taiwan, which has invested about half of the total foreign direct investment of US$562.1 billion in China. Given that Taiwan's GDP is NT$10 trillion, the NT$9.27 trillion investment is proportionally way too large.

The outflow of capital to China, the decline of industrial competitiveness and a dearth of healthy dynamics in the stock market have hit investor confidence. The opposition's blockade of the arms-procurement bill has sparked a "national security" crisis, and this has undermined public confidence in the market.

It is evident that capital outflow and the relocation of industry to China are the two primary factors behind the market's poor performance. So we should not fall for the mumbo-jumbo about reviving the market by breaking the cross-strait gridlock. We should also reject direct cross-strait flights, which will only increase the flow of money, talent and technology to China and further weaken the market.

From experience, decreasing the number of Taiwanese investors in China, lowering Taiwan's economic dependency on China and promoting Taiwanese consciousness are the only strategies that can be relied on to revive Taiwan's stock market.

Huang Tien-lin is a national policy adviser to the president.

TRANSLATED BY LIN YA-TI
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