Using the NT$500 billion National Stabilization Fund to intervene in the stock market in an effort to shore up share prices would be futile, critics say.
President Chen Shui-bian (陳水扁) on Monday said that the fund would be directed to intervene should the conflict in Central Asia cause instability in Taiwan's share market.
The fund is already sitting on huge losses from past failed efforts to support the TAIEX, and critics say more losses are in the offing should the government decide to compound its mistakes.
"What's the point of activating the stabilization fund?" said Yophy Huang (黃耀輝), an associate research fellow at the Chunghwa Institute for Economic Research. "The war between the US and Afghanistan has almost no connection with the national security of Taiwan."
Huang said that the stock market should reflect the economy's performance -- which intervention distorts.
The academic also noted that other countries such as Japan and Singapore stay out of the market during times of trouble, and so too should Taiwan.
"In addition, the stabilization fund has already generated huge losses, so the administration should be extremely cautious in taking any action," Huang said.
The stabilization fund was formed to bolster shares when non-fundamental factors -- such as saber-rattling from China or a natural disaster such as the 921 earthquake -- scare investors into panic-selling.
As of June, the fund was sitting on losses of NT$49 billion from past failed efforts.
Norman Yin (
"It would be wasting money again, should the administration decide to intervene in the market because of the war," Yin said.
Despite the ongoing bombing campaign over Afghanistan, the TAIEX appears to be doing fine without the government's help.
The index rose 98.58 points yesterday, or 2.8 percent, to 3,618.93. Chu Jaw-chyuan (朱兆銓), chairman of Securities and Futures Commission, said foreigners were among the major buyers yesterday.
"The major buyers yesterday were from qualified foreign institutional investors," Chu said.
"It shows that foreign investors are more rational [than local retail investors]."
Even if the national stabilization fund intervenes, there may not be enough ammunition left to move shares significantly.
The four government-related labor and pension funds -- which often act in concert with the stabilization fund -- are sitting on massive losses from prior intervention efforts and have little money left over for future action.
The Labor Insurance Fund had NT$93.2 billion in the stock market by the end of third quarter, or 18.04 percent of the fund's assets.
The fund is permitted to invest no more than 20 percent of its assets in stocks.
The Labor Pension Fund had NT$61.3 billion, or 24.28 percent. Its cap is 30 percent.
What's more, the fund plans to turn over NT$15 billion of its assets to private firms for professional management.
Combined, that leaves just NT$12 billion available for the two funds to invest in stocks.
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