Mon, Dec 16, 2019 page6

• EDITORIAL: Stock markets still need work

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  Taiwan’s stock market surged to a fresh 29-year high in recent sessions, with the TAIEX staying above 10,000 points, which seems to have become the new norm. Investors are embracing the market thanks to the nation’s steady economic growth, as well as local equities’ average price-to-earnings ratio of about 19 and an average dividend yield of 4 percent. The tax cut on day trading transactions — from 0.003 percent to 0.0015 percent — and inflows of hot money also play a role in boosting market turnover.

  However, what happens behind the scenes is that large-cap stocks have continued to lead the rally on the back of ample liquidity among institutional investors, especially foreign investors, while the small and mid-cap stocks favored by retail investors have lagged behind. Retail investors are less interested in entering the trading floor than their institutional peers, because the trading environment in the local market is not friendly to them.

  While the TAIEX has continued to hover at relatively high levels, retail investors’ perception of making money is not as strong as before.

  The TAIEX has hit the 10,000-point mark three times before. The first was in 1990, when it was bolstered by a flood of capital chasing a relatively small number of stocks, which pushed many company stock valuations well above NT$1,000. The second and third times, in 1997 and 2000, were supported by technology companies and Internet-based firms.

  At that time, the total number of listed companies on both the Taiwan Stock Exchange and the Taipei Exchange had increased to around 7,800, with the average daily turnover reaching between NT$200 billion and NT$300 billion (between US$6.6 billion and US$9.9 billion). The booming market then reflected growing local industries and Taiwan’s expanding economy. However, this time, investors generally have a calm perception of the market. Even though there are more than 1,700 listed companies trading shares on the local exchanges, the average daily turnover is only about NT$150 billion.

  Foreign investors now hold about 40 percent of local equities and many of them focus on large-cap stocks, but their lukewarm interest in the small and mid-cap stocks, for which retail investors have a higher preference, has inspired few retail investors to rejoice about the market boom this year.

  On the other hand, fluctuations caused by international political and economic situations have also negatively influenced new listings, as initial public offering activity might reach the lowest this year since 2009, according to the Financial Supervisory Commission’s estimate.

  In order to create a friendly environment for all investors, the Taiwan Stock Exchange is to launch a new continuous trading mechanism on March 23 that aims to allow buy and sell orders to be executed by traders without a lag. To further attract young investors and small-cap buyers, the exchange plans to promote the odd-lot intraday trading from the second half of next year, making big-ticket stocks affordable to individual investors.

  What is more important are the structural reforms of the market, including efforts to reduce the number of companies, adjust the exchange’s constituents, lower capital gains taxation on stocks and introduce more investment trust products that are attractive to individual investors.

  In addition, the local market has long contained a number of so-called zombie stocks — shares with little turnover and fewer daily price changes — which should also be addressed by the authorities.
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