Taiwan’s stocks fell for a fourth consecutive week last week to a fresh five-month low. While optimists had hoped the historic launch of direct cross-strait charter flights would help the market to rebound from recent lows, concerns about the economy and rising inflation continued to dampen market sentiment, sending the benchmark TAIEX lower by 320.35 points, or 4.24 percent, to close the week at 7,228.41.
To prop up the local bourse, the government has recently announced a spate of market-friendly measures and trotted out upbeat expectations over improved cross-strait relations in the hope of revitalizing the local economy. But many of these practices are either lip service, nonsense or of questionable use and legality.
For instance, the government said it would encourage domestic insurance companies — with total assets of NT$8 trillion (US$263 billion) — to buy local stocks to shore up the market. But regulations stipulate that local insurers can only invest up to 35 percent of their assets — or NT$2.8 trillion at the most — in the equity market and, most importantly, insurers are to only do so based on their own professional evaluations, not at the behest of the government.
The government said it would also ask board members of listed companies to increase their holdings in their firms to meet regulations, or else market regulators would strengthen monitoring when board members own less than the required numbers of shares for three months in a row.
The government apparently hopes such board member purchases can help boost market momentum. This practice is likely to improve corporate governance at these companies, but is not sufficient to give markets a real boost. Firms that have board members who own less than the required numbers of shares are typically not the type of blue-chip firms, such as Acer Inc or Taiwan Semiconductor Manufacturing Co (台積電), that can create a significant impact on market momentum.
As part of its effort to move the market, the government urged listed companies to exercise share buyback plans in a bid to create value for shareholders and increase market confidence.
Some companies followed suit last week in a token gesture to express their support for the government’s announcement.
Even though share repurchasing makes sense when a company’s share prices are extremely undervalued, not many companies will apply this practice because it would invite questions from critical shareholders about whether the buybacks are the most efficient use of the company’s own capital. How about exploring other options such as reinvestment plans or big dividend pay-outs?
On Thursday, the government offered good news to local brokerages as it approved proposals to raise the amount of assets that local mutual funds can invest in Chinese stocks, as well as in Hong Kong-listed H-shares and red-chip shares. It also allowed cross-listings of exchange-traded funds between the Taiwan Stock Exchange and the Hong Kong Stock Exchange.
This is a long-term plan designed to expand local capital markets, but it won’t help market sentiment in the near future, as it came as stock markets in China and Hong Kong have declined 49 percent and 23 percent respectively so far this year.
Taiwan’s stock market is now down more than 2,000 points from this year’s high of 9,300 and the TAIEX has fallen 23.5 percent since President Ma Ying-jeou’s (馬英九) inauguration on May 20.
While the government said the recent local market plunge is part of a broad sell-off amid global inflationary worries over rising crude oil and raw materials prices, it is going to be a difficult second half of the year for investors unless the oil price stops climbing or the government can fashion a real boost to market confidence.
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