Wed, Oct 06, 1999 page17

• Fund companies lose NT$30bn in quake aftermath

  PANIC The first four days of trading after the quake saw heavy redemption orders by investors who may have acted too fast

  • By Stanley Chou / STAFF REPORTER
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  Heavy redemption by panicking investors during the first trading week after the earthquake resulted in a NT$21.5 billion drop in total assets held by the top ten fund companies in Taiwan. The total redemption for all fund companies was estimated to be over NT$30 billion. However, with the gradual stabilization of the stock market index, fund company executives expect most of the redeemed capital will make a gradual return in the near future. Some even questioned the wisdom of such panic selling.

  "It's unwise to redeem stock fund investments after a short-term bearish incident like the earthquake," said Henry Cheng (鄭百亨), managing director of Manulife FundsDirect (Taiwan). Many fund investors redeemed their investment last week before the market rebound, he said. According to the historical precedent of mutual fund investments, they should instead have been buying at such a point. "Many of them will regret their panic selling," Cheng added.

  According to fund company executives, the total redemption of stock funds, for all the local fund companies at least, was estimated at NT$20 billion over the course of last week's six trading sessions. Meanwhile, the total redemption of bond funds was estimated to have been at least NT$10 billion. At the end of August, total assets managed by the top 33 fund companies added up to NT$997 billion, with NT$648 billion managed by the top 10 fund companies.

  The first trading day after the four-day closure saw redemption levels hit NT$19.48 billion, the highest in the four days of panic selling by local investors. During the panic, concerted efforts by fund companies' staff bore fruit as, according to estimates, nearly half of the redemption orders were canceled. Nevertheless, the top ten fund companies still suffered a heavy dent in total assets.

  While almost all the fund companies suffered in the panic redemption, the scale for each fund company varied. National (建弘)was the hardest hit, with redemption from both stock and bond funds adding up to NT$4.8 billion. According to a company executive, 14 percent of its assets in stock funds was redeemed last week.

  The heaviest redemption of stock funds alone saw Jardine Fleming (怡富) lose NT$1.8 billion. The total stock fund assets managed by the company before the quake had been NT$39.6 billion. Deducting its huge overseas stock funds, Jardine's net assets in local stocks came to NT$10.7 billion. The redemption therefore saw it lose 16 percent of its local stock fund assets, the highest ratio among local fund companies. According to analysts, one of the reasons for this was that most of Jardine Fleming's clients are retail investors. These were the investors who made up the largest segment of panicked investors wanting to unload shares after the quake.

  Another company seriously affected by the panic redemption was Core Swire (京華), which lost 10 percent of its stock fund assets. The redemption percentage for most of the other fund companies was under 10 percent.

  The redemption of bond funds was due to more seasonal factors. With the end of September marking the end of the third quarter of the year, many listed companies chose to redeem their investment in bond funds to prevent any bond fund position being listed in their quarterly report. The largest redemption of bond funds was Yuan-ta's (元大) NT$3.9 billion and National's NT$3 billion.
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