Sat, Jul 22, 2000 page17

• Politics sideline foreign investors

  THE MARKET Although still upbeat on Taiwan's economic fundamentals, many foreign investors have grown skeptical over the government's economic policies

  • By Stanley Chou / STAFF REPORTER
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  Ongoing political instability has prompted foreign institutional investors to shift their assets into other Asian markets over the past two days, analysts say.

  Foreign institutional investors sold a net NT$2.03 billion in shares on Thursday and a net NT$3.84 billion yesterday.

  The selling could lead local investors to also dump their shares, according to analysts at foreign securities firms, who asked not to be identified.

  "Foreign investors have been very optimistic on the prospects of Taiwan's electronics industry. However, political stability is also an important factor that determines foreign fund managers' investment decisions," said one analyst.

  "The new Cabinet obviously has not adjusted and many Cabinet members still lack coordination and cooperation. Certain measures such as a number of unrealistic commitments to salvage traditional industries have raised doubts among foreign institutional investors."

  The analyst said foreign investors have been reducing their Taiwan holdings recently and moving into neighboring countries such as Japan and South Korea.

  Foreigners have also been selling electronics shares such as semiconductor makers, though many remain positive on the high-tech sector, the analyst said.

  "From my view, I expect the market to bounce back somewhere around the end of August," he said.

  Another analyst at a US brokerage house concurred.

  "Foreign investors originally gave Taiwan's government high marks for its democratic transfer of power," the analyst said.

  "Foreign investors have been tolerant during the new administration's initial learning period. But recent contradictions in the political arena between the Legislative Yuan and Executive Yuan as well as the two main political parties have made major economic policies unclear."

  But foreigners' appetites for Taiwan stocks haven't been spoiled by politics alone.

  "After the NASDAQ made a considerable correction recently, fund managers worldwide have been waiting for a signal that the American economy has made a `soft-landing.' Foreign investors have been more conservative on their emerging market investments and have been gradually withdrawing from unstable markets," the American analyst said.

  But because Taiwan is strongly supported by its fundamentals, the analysts said, foreign investors aren't likely to exit the market entirely. On the other hand, they are not likely to boost their investment in Taiwan, either. When negative political factors come into play, foreign investors are likely to be more conservative, the analyst said.

  Ding Yu-jia (丁予嘉), vice president of International Securities Investment Trust, said foreigners invested heavily in Taiwan during the last two years to seek shelter from the regional financial crisis.

  "However, the investment attitude of foreign investors toward Taiwan is beginning to mature. Because Taiwan's market is supported by manufacturing fundamentals and is relatively stronger than other markets, foreign investors will not pull their investments out of Taiwan."

  Still, the possibility of a massive inflow of foreign investors is also extremely unlikely.

  "Local investors should not put their hope in foreign investors as a `savior of a bullish market' any more," Ding said.

  Securities regulators have been closely monitoring the trading activities of institutional investors recently, especially those who act as brokers of foreign investors. These brokers are required to file their daily transaction details with the regulators.
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