Tue, Apr 04, 2000 page17

• Government shares likely to be sold back directly

  STOCKS Because the government's stabilization fund borrowed money to intervene in the market, officials say holding equities for too long would be too costly

  • By Stanley Chou / STAFF REPORTER
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  Instead of establishing a mutual fund similar to the Hong Kong government's Tracker Fund, Taiwan's National Stabilization Fund (NSF, 國家安定基金) is likely to simply sell back its holdings directly to the market.

  In the days before and after the presidential election, the fund bought more than NT$50 billion in equities. But with the TAIEX now over 10,000, government officials say its time to withdraw.

  A Ministry of Finance (財政部) official said the fund's holdings came to roughly NT$54.1 billion (US$1.8 billion). The official said the shares would be sold when the time is appropriate.

  The timing of the sale and associated regulations will be discussed at a meeting of the fund's management committee this Saturday.

  Previously, the finance ministry considered establishing a mutual fund similar to Hong Kong's Tracker Fund. That fund consists of stock assets the Hong Kong government purchased during the Asian financial crisis.

  But after internal discussions, the ministry decided to sell directly in the market to avoid the complexity of setting up a mutual fund.

  In Saturday's meeting, the fund members will likely discuss how to withdraw from the stock market, the rules and regulations of its operation and the effect of its intervention, ministry officials said.

  Because the market's daily turnover recently has been around NT$200 billion, officials say the selling of NT$50 billion in equities shouldn't have a major market impact.

  "The purpose of the fund is not to make a profit, and there is no need for profit-taking at this point," said Yeng Ching-chang (顏慶章), deputy Minister of Finance and the fund's executive secretary.

  "But because the fund has to pay interest on its loan from commercial banks, it is unsuitable to hold equities over the long term."

  Yeng promised the fund's withdrawal from the market would be an orderly one.

  "As to the question of whether the fund will withdraw completely before May 20 or not, it has nothing to do with the inauguration of the next president," he said.

  Though the fund is permitted to buy up to NT$500 billion in stocks, that ceiling can be raised by the government at any time, if necessary.

  Government intervention in the stock market has drawn strong criticism from some in the investment community, who would prefer that stocks be left to the devices of Adam Smith's invisible hand.

  "Intervention will compromise market efficiency, which in turn will disrupt the functioning of a free economy," said K. P. Liu (劉凱平), president of Sino Pro Securities Investment Consulting. "It is why most developed countries such as the US and the UK seldom intervene in their stock markets."

  Liu added that intervention normally has just a short-term effect.

  "If the fundamentals of the stock market has turned sour, government intervention will be in vain if it chooses to go against the selling pressure of the private sector."

  Liu cited the example of the Japanese government during the oil crisis of the 1970s. It intervened to support stocks and failed. So, too, did Malaysia three years ago.

  "Someone might take the cooperative intervention of Hong Kong government together with China as a successful case. But actually the Hang Seng Index dropped more than 50 percent before it finally rebounded," Liu said.

  "The magnitude of that intervention was immense, but it still could not stop the stock market from collapsing."
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