Although the Philippines finds itself in political turmoil amid rumors of an impending coup, its stock market rose by 1 percent to close at 2,185.71 on Tuesday, a seven-year high. Clearly, as long as a nation's economic foundations remain solid, political conflict will not have an impact on how its stock market performs. Similarly, people have been taking to the streets in Bangkok for several days in a row, but the Thai stock market remains untroubled.
After the Lunar New Year, many market observers predicted a bullish rally in Taiwan's stock market this year. Despite this, the TAIEX closed below the 6,500 mark on Tuesday, once again leaving many foreign and Taiwanese investors with their capital tied up in the stock market due to falling share prices.
Since early this year, foreign investors have poured a total of US$2.9 billion into the nation's stock market, far exceeding the US$1.3 billion and the US$400 million they have invested in South Korea's and Indonesia's stock markets, respectively. As to the Philippines, foreign investors have only injected a meager US$100 million. Why does the TAIEX disappoint us so?
The pro-unification camp in Taiwan is taking advantage of the current situation to blame President Chen Shui-bian (
But a look at the examples of the Philippines and Thailand show these accusations to be completely groundless. What exactly did cause the TAIEX's fall this week? Answers can be found in recent news coverage by pro-unification media outlets.
Monday's edition of the Chinese-language Commercial Times reported that "Slow private investment will cause the overall investment rate to decline to 19.5 percent this year, whereas investment rates in South Korea and Japan will reach 30 percent and 23 percent, respectively."
It is true that Taiwan's investment rate is unimaginably low. But are Taiwanese companies really unwilling to invest? Of course not, they are simply investing in the wrong place.
Tuesday's edition of the Chinese-language Economic Daily News also reported that the amount of China-bound investments approved by the Investment Commission under the Ministry of Economic Affairs in January and February grew 31.9 percent compared with the same period a year ago.
This only indicates that Taiwanese companies' willingness to invest in China is unabated. Since Chen vowed to "actively manage" China-bound investment on Jan. 1, there has actually been an increase in the approval of investment across the Strait. So we have our answer: The nation's stock market is not picking up because capital continues to flow out of Taiwan.
People may wonder how much Taiwan has invested in China. According to a report published by the US Congress, Taiwan's accumulated investment in China over the past 15 years (about US$280 billion) constitutes one-half of total direct foreign investment in China. In other words, Taiwan invests an average of US$18 billion per year in China. If we assume a growth rate of 31 percent, capital outflows from Taiwan to China will reach US$23 billion (NT$740 billion), equivalent to 7.4 percent of Taiwan's GDP, which was US$331 billion last year.
That means if companies stop moving westward and instead invest their capital in Taiwan, the nation's overall investment rate would reach 26.9 percent (19.5 percent plus 7.4 percent), close to South Korea's 30 percent.
This reverse calculation proves that statistical figures presented in the report from the US Congress are correct, and not off the mark. If overall investment did reach that level, Taiwan would meet the domestic investment standard of a normal nation, and the nation's stock market would reach a record high just like the stock market in South Korea did last year. (The TAIEX record is 12,682 points). In the same way, per capita income would have surpassed US$20,000, and stock market investors would have done well.
As long as the government implements the "active management" policy proposed by the president in his New Year message, minimizes capital outflow and promotes domestic investment, the investment environment in Taiwan will see an overall improvement, foreign investors will not see their capital tied up due to falling prices and stockholders will be delighted.
If the Taiwanese really want to turn a profit on the stock market, they should supervise the government to make sure that it immediately abandons the "go west" policy and the policy aiming to open the three direct links. The government should draw up measures as soon as possible to actively stop companies from moving to China. This is key to revitalizing Taiwan's stock market.
Huang Tien-lin is a national policy adviser to the president.
Translated by Daniel Cheng and Lin Ya-ti
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