Don’t tamper with the market
Nothing could be more distressing to local and international investors than to hear bickering over Taiwan’s stock exchange about its alleged “underperformance.” Even seasoned news professionals seem to have fallen for the idea that a daily turnover of less than NT$200 billion (US$6.43 billion) is somehow a bad thing and that taxes need to be lowered to increase speculation.
Nothing could be further from the truth. Perng Fai-nan (彭淮南) is a competent central bank governor who believes in a strong and stable currency, which I have long advocated, and he supports a hands-off approach to new “reforms.” Minister of Finance Chang Sheng-ford (張盛和) said that the market is healthy and Taiwan’s companies are solid and profitable.
On the other hand, skeptics including Financial Supervisory Commission Chairman William Tseng (曾銘宗) whined about low trading volumes, citing the higher-than-average transaction tax as a deterrent to investors. Tseng’s fears are unjustified.
The transaction tax could more accurately be described as an “anti-bubble safeguard,” because it forces participants to have some “skin in the game,” just like when you ante in poker.
There is no reason to bother Academia Sinica with your silly questions, Tseng. Let me explain what is really going on.
First, it is clear that global investors do not seem to mind paying the 0.3 percent transaction tax, as demonstrated by the substantial majority of foreign shareholders in Taiwan Semiconductor Manufacturing Co. Second, transaction volumes are down because most investors are long-term, buy-and-hold investors, which explains why the volatility on the bourse is relatively low.
Citing the indices in Shanghai and Hong Kong for comparison is absolutely irresponsible. Now that China’s property bubble has burst, speculators are looking for any kind of positive yield, so they are all piling into stocks — even grandmas are doing it.
Indeed, 10.8 million new trading accounts have been opened so far this year, surpassing the cumulative total of 2013 and last year. Statistics show that margin debt has blown away all previous records, and that a full third of the investors (gamblers) in Shanghai and Hong Kong have an elementary school education — or less! How can this end well?
Recent “reforms” to “improve” the “market” in China include opening up the north-south link to allow speculators to participate on the Hong Kong bourse, which has exploded to the most bubblicious heights ever, completely divorced from economic fundamentals. Investors holding shares should run, not walk, for the exit now before someone screams “fire” in the theater.
Taiwan’s prudent 7 percent daily limit on volatile stock movements is wise and should be maintained — not increased to 10 percent as was recently proposed.
Investors want predictability, transparency and safety before they lay their cash on the table, and the current policies largely provide that, apart from risks that international investors all know about (such as unexpected bad news).
Leave the stock market alone. As for Tseng, perhaps there is a similar position he could take up at Taiwan’s diplomatic ally, Tuvalu. I hear that there is a growing market for colorful shells in our Pacific island neighbor.
Torch Pratt
New Taipei City
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