Tue, Mar 14, 2000 page8

• Editorial: Just another election weapon

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  It has been said that the quickest way to the hearts and minds of Taiwanese is through their stock market. No better illustration of this could be found than the 6.6 percent plunge on the Taiwan Stock Exchange yesterday, as the nation sat transfixed by the sudden sharp deterioration in its most treasured barometer of prosperity.

  Many questions were answered by yesterday's 600-point drop in the TAIEX, the sharpest fall since just before the previous presidential election, when China was lobbing missiles around the island. Probably the first was: Who controls the market? Despite its waning influence in recent years, the KMT government still does. With sentiment already skittish thanks to China's recent white paper, the world's richest party delivered a double whammy to investors yesterday by, first, selling off shares held by party-affiliated companies and, second, by failing to use government-linked funds to prop up the market once it began to slip. Together, it was enough to convince retail investors, who make up 90 percent of daily turnover, that a crash was imminent and that no one would be coming to their aid as they had been in recent weeks.

  Yet again, such tactics by the KMT could have been foreseen by a novice observing the current presidential election. After a weekend that will likely go down in history for some of the party's worst-ever campaigning, when the DPP's presidential candidate, Chen Shui-bian (陳水扁), pulled at least 400,000 people to rallies in central and southern Taiwan and had some of the nation's leading cultural, academic and business leaders coming out to support him, the KMT simply had to pull the plug on the market. It had tried everything else, with no success. Its TV ads showing young men marching off to war in the event of a Chen victory had failed to scare voters into abandoning him. Lee Teng-hui (李登輝) raising Lien Chan's arm in front of the cameras and saying, "this is my boy," could only go so far among the older generation. All the usual smear tactics that had worked time and time again for the party failed, so it had to draw its biggest gun. And that it did.

  The second question which was answered is perhaps less obvious and more enlightening. Are foreign investors worried about the prospects of a Chen administration? Not if yesterday's activity was any indication. While retail investors were panicking, foreigners were net buyers of about US$150 million (roughly NT$4.6 billion) in stocks. With Taiwan's economic fundamentals solid, its electronic exports machine cranked up to full gear and with growth of a sizzling 7.5 percent predicted for this year, they had reason to be bargain-hunting. But they wouldn't have been buying if they didn't believe in Taiwan's longer-term potential -- even under a DPP government.

  That foreigners were spot-on in their thinking is supported by the answer to the third, and perhaps most instructive question: Does a government that engineers a fall in its own stock market deserve to stay in power? Surely not. What kind of financial regulator would deliberately push its own stock market down, wiping off billions of dollars in wealth from the household accounts of its people? Under Chen Shui-bian, the Taiwan stock market's governance could not possibly get worse than it already is.
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