Investors, beware. If there’s anything to be learned from the recent plunge in the stock market, it is the dubious and dangerous role of the government.
The government has done investors no favors with its indecisive and ineffective responses to public demands, which have fed pessimistic market sentiment at a time when economic and credit concerns have already taken their toll.
Even when the government has responded, it has distanced itself from investors with irrelevant and contradictory measures.
That the government’s NT$180.9 billion (US$5.6 billion) economic stimulus package, unveiled on Thursday, did not boost the market significantly the next day indicated that most investors were unimpressed and felt that the plan would probably have only a limited impact in countering the economic slowdown.
It is no longer hyperbole to say the government is battering the stock market. The government seems to be sharing a podium with the notorious financial advisers who feature on several local cable channels, and foreign investors who often mislead the market by saying one thing and doing another.
A tell-tale sign that all is not well: Each time the government says the market will recover and touts the nation’s stable economic fundamentals, the benchmark index falls over the next few days.
Experience has shown that when the government promises stock-boosting measures, including using government funds to prop up sagging share prices, local individual and institutional investors lose a significant sum in the process, while foreign investors gain time to offload local equities.
Debates on the appropriateness of government intervention are often intertwined with the love-hate relationship between investors and the government. But that is hardly the case with the controversy over stock recommendations offered by the Taiwan Stock Exchange Corp earlier last week.
On Monday, at the request of the Financial Supervisory Commission, the stock exchange regulator released a list of 93 undervalued shares to help investors find bargains.
Both the stock exchange and the commission seemed to forget their jobs were to monitor transactions and push for market discipline. Acting like professional financial advisers only indicated that they have no idea what their role is or how to fill it effectively.
By pushing these equities and assuming their stocks had the potential to deliver above-average returns in the future, these government agencies acted recklessly — behavior to be expected from an inexperienced investor, not a government.
In short, the government wanted to encourage investors to purchase stocks that have declined significantly. It failed to address one issue, however: Why the share prices of these companies had fallen so much in the first place. There was no discussion as to whether their falling prices had to do with deteriorating fundamentals, intensifying market competition, corporate scandals or other factors.
The truth is, investors should be wary about investing in these government-recommended stocks without a clearer understanding of what is ailing them.
A qualified adviser would say not to try catching a falling knife — you could get cut. An underqualified broker only offers a long list of regrets.
Because the government seems not to fully understand the changeable investment environment and policymakers are turning to past experience to deal with new ills, investors are better off researching the situation themselves.
As the government has said, investors must ultimately bear responsibility for losses incurred from their own decisions.
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