Government fails to prop up TAIEX as stocks decline

Though government officials over the weekend vowed to support the TAIEX and the NT dollar, both fell yesterday -- and analysts say further declines are likely unless investor confidence returns to the market.

The TAIEX dropped 103.17 points yesterday, or 1.26 percent, to 8,064.2. The NT dollar also weakened, falling NT$0.039 to NT$31.058 against the US dollar.

Local media reported yesterday that officials at the Executive Yuan have pinpointed the stock market's bottom at 8,000. The local currency, meanwhile, isn't expected to weaken beyond NT$31.

Regulators reportedly intend to support the stock and forex markets at these levels.

But Shea Jia-dong (許嘉棟), Minister of Finance, told legislator's yesterday that Adam Smith's invisible hand -- and not the government's -- would determine the market's direction.

"The fundamentals of Taiwan's stock market are good," Shea said. "Investors should not hope that whenever the market drops the government will maintain market stability."

Shea said the Ministry of Finance has done everything in its power to boost the market, and he discounted the notion that officials have identified 8,000 as the main index's floor.

"In other words, the new administration will not use 8,000 points as a benchmark. At least, the ministry has not set any benchmark."

Shea also said that other ministries and councils should act in ways that would support the stock market, and that the Ministry of Finance could not be solely relied upon.

Academics say the government must focus on the reasons behind the dwindling stock and forex markets, instead of intervention efforts.

"Unless the new administration can eliminate non-economic factors that have triggered the falls in the stock and foreign exchange markets, any technical measure aimed at reviving them will be counter-productive," said Norman Yin (殷乃平), a finance professor at Chengchi University.

"The uncertainty that has worried both local and foreign investors has been over the competency of the new administration," Yin said. "The new administration must remove uncertainty over its policies first" before investors will begin to regain confidence, he said.

Yin added that Premier Tang Fei (唐飛) and other senior officials were financially unsophisticated and unable to tackle economic issues.

"The complexity of the financial markets is way over their heads," Yin said. "It's why they want to defend the financial markets without knowing what's causing the fall or how to solve the problem."

Dicky Dai (戴震), a market commentator and former chairman of a local securities house, said what was needed was a massive Hong Kong-style intervention. During the Asian financial crisis, the Hong Kong government bought more than HK$118 billion (US$15 billion) in equities to support the market.

"Just lip service will not work," Dai said, adding that occasional buying wasn't enough.

Dai also said that the stock market's low turnover recently indicated that investors were not panic selling.

The market analyst also said that trading in warrants by foreign investors has forced them to dump electronics shares recently to minimize their risk.

But if the electronics sector climbs between 7 percent or 14 percent, he said, they would be forced to by back their shares.

"But scattered buying is not enough to revive the market," Dai said.