The Financial Supervisory Commission (FSC) yesterday announced that the daily trading limit on the local stock market would revert to its normal 7 percent today to boost the market’s liquidity after several days of a 3.5 percent limit.
“The [3.5 percent limit] measure has effectively achieved the purpose of easing financial shocks on the TAIEX, and confidence in it has also been stabilized,” the commission said in a written statement yesterday.
It said that over the past week with the daily limit halved, the TAIEX dropped 7.68 percent, outperforming several neighboring Asian markets including Japan, South Korea, Hong Kong and Singapore, all of which dropped more than 10 percent.
The local benchmark, however, under-performed major world markets including the US, England, Canada, Australia and China, whose decline was narrowed to between 3 percent and 5 percent as state bailout plans eased investors’ minds.
The commission yesterday admitted that its policy last week, however, had affected the TAIEX’s daily turnover, which has seen an almost 30 percent decline.
After taking the global market conditions into consideration and “opinions expressed by local pundits,” the commission made its decision yesterday.
The commission also urged investors to stay focused on company fundamentals as the price-earning ratio of TAIEX-listed companies has declined to an average of 8.2, which presented an attractive valuation.
The market’s 330 publicly traded companies had a ratio below 10, it said, adding that the nation’s public companies still saw earnings growth of 3.3 percent month-on-month last month.
The nation’s public companies earnings grew 8 percent year-on-year in the first nine months of this year, the commission said.
Analysts yesterday expressed mixed views about the commission’s decision to resume the 7 percent daily limit.
Chief investment officer of Union Securities Investment Trust Co (聯邦投信), Li Fang-kuo (黎方國), expressed concerns that lifting the halved daily trading limit would accelerate the exodus of foreign investors.
He lauded the government decision last week to halve the daily trading limit, which had effectively slowed down capital flight out of the TAIEX.
He told the Chinese-language Commercial Times that such a trading regulation was a contingency measure amid financial headwinds to shore up market confidence.
Another stock analyst, who requested anonymity, disagreed, praising the commission’s deregulatory decision yesterday.
“It’s a good thing,” she said.
With the halved limit imposed, few investors were interested in trading since the market’s downward correction would only be delayed, instead of stopped, she said.
Governments should remove their interventions whenever necessary, she said.
She said that the regulator’s new policy would have a limited impact on the TAIEX’s fluctuations next week since external financial shocks appeared to have not come to a complete halt while other analysts speculated that the market would face mounting selling pressures next week and would test the 4,200-point level from its close on Friday of 4,579.62.
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