In a rare move, the Financial Supervisory Commission issued a statement on Friday after the stock market fell 200.56 points to its lowest close since Dec. 23. Attempting to bolster public confidence, the commission said that Taiwan’s economic fundamentals remained good and that the local bourse had outperformed most regional markets this year.
The commission had good reason to do so, because the 2.47 percent fall on the TAIEX was the biggest one-day drop since a 3.2 percent decline on Nov. 27, while a net sell-off of NT$20.38 billion (US$637.3 million) in Taiwanese shares by foreign investors on the day represented the largest amount since Nov. 27, when the market was haunted by Dubai’s debt.
On the one hand, the commission’s statement reflected strong concern about the fifth consecutive decline on the local bourse after China’s decision to tighten credit and amid continuing declines on Wall Street.
On the other, its use of recent data in the statement — rising revenues and profits at listed companies, recovering export orders, falling unemployment and a net foreign capital inflow since the beginning of the year — displayed confidence in the nation’s economy.
Nevertheless, the statement did not provide a clear answer to investors on whether Taiwan can ride out potential challenges from abroad, though it did say the local market’s recent decline had something to do with China’s stepped-up measures on interest rates, as well as US President Barack Obama’s plans to reform his country’s banking system.
Investors must bear in mind that monetary tightening in China is likely to prompt other regional economies to take similar action as they work together to contain potential asset bubbles across Asia. But raising interest rates too quickly might stall the region’s recovery at a time when signs of sustainable growth have yet to emerge.
Meanwhile, Obama’s plan to focus US banks on their core business and steer them away from risk-taking ventures like hedge funds or private equity investments may retard their expansion and thus have an impact on the nation’s economic growth.
In other words, with external factors continuing to impress heavily on the market, the commission’s statement is not likely to increase investor confidence in the local bourse.
The commission should allow the public a better understanding of the nation’s economic challenges. It should offer people a timely warning on potential market risks around the world rather than self-congratulation.
The commission appeared to move in the wrong direction on Friday by telling investors that there was no cause for concern. It seemed as if it was encouraging people to load up on shares at a time when economic uncertainties are growing again.
Twenty months after taking office, President Ma Ying-jeou’s (馬英九) government has still not learned to tell the truth about the economy, but it has blindly grown in confidence when it comes to cross-strait economic prospects.
It all appears as if the central bank is a lone warrior, battling inflows of hot money and the looming threat of asset bubbles, even as other government agencies continue to indulge in post-market-surge complacency.
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