The Labor Retirement Fund, Taiwan's second biggest government pension fund, won't buy stocks at the behest of the government this year, defying efforts to prop up a market that's lost half its value in a year.
The Labor Affairs Department's NT$240 billion (US$6.9 billion) fund may buy stocks again next year "if there's evidence of an economic recovery," said the fund's director Chen Sheng-hsien (
TAIEX has lost 48 percent in US dollar terms over the past year, the third worst in the world behind Turkey and Cyprus as slumping global demand for the island's semiconductors and computer parts ground economic growth to a halt. The slide has been slowed at least seven times this year by speculation that government funds had been ordered to buy shares.
"I don't agree with government support of the stock market," Chen said in an interview. "The stock market is supposed to be a free market and if you artificially prop up the market, the result will not be good.''
The fund is one of four government funds that control NT$1.5 trillion in investments. The Labor Retirement Fund is second only to the Postal Savings Fund and is bigger than the Civil Servant Pension Fund and the Labor Insurance Fund. The four main funds had planned to sink NT$100 billion into local equities by year-end, local newspapers reported last month.
"The government has pushed the four funds to buy," said Peter Cheng, an executive vice president at UBS Asset Management Taiwan Ltd, which manages NT$19 billion in investments on the island. He estimates the funds bought NT$10 billion in shares this year and failed to turn the market because "people don't have confidence in the new government and the economy."
Taiwan's economy expanded at an annual rate of 1.1 percent in the first quarter, slowing from a 6 percent clip last year. The approval rating for President Chen Shui-bian (
Cheng said further buying may not help boost share prices as it would only represent a fraction of the market's turnover, NT$74.91 billion per day on average this year.
The Labor Retirement Fund's Chen says he makes investment decisions with a committee drawn from labor representatives, government officials and academia. When asked whether the fund has bought shares at the government's bequest, he said it hasn't this year.
About 35 percent, or NT$62 billion, of the Labor Retirement Fund is invested in local stocks, 46 percent is in cash at the bank and 28 percent has been lent to government-owned businesses, Chen said.
Huang Shih-chao, the secretary of the supervisory board of the Civil Servant Pension Fund, said 40 percent, the maximum allowed under the fund's internal regulations, of the fund's NT$186 billion in investments is in Taiwan stocks.
Huang said government requests to buy stocks are subject to internal review and limits on exposure to one class of securities.
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