Financial Supervisory Commission (FSC) Chairman William Tseng (曾銘宗) is undoubtedly local stock markets’ best lobbyist, working to relax equity trading and investing rules in an attempt to revive the nation’s sluggish bourses since taking office in August last year.
In the latest slew of stimulus measures — Tseng’s so-called “fourth arrow” — the commission is raising the long-term cap on borrowing for margin trading, or short-selling, on a single stock to NT$30 million (US$974,800) from NT$15 million.
Tseng has also repeatedly expressed optimism about the local stock market, citing strong corporate earnings, transparent financial disclosure and lower share prices. In the first three quarters of the year, listed companies reported combined annual growth of 20.28 percent in net profit, bringing their total to NT$1.4 trillion, commission data show.
However, the question remains: Should investors buy what Tseng is saying? Obviously, the answer is “no,” since investors have to take more complicated issues into consideration than just economic fundamentals. The “fourth arrow” is failing to shore up investor confidence and they continue to sit on the sidelines, amid the ongoing substandard oil scandal and the political uncertainty stemming from next week’s nine-in-one elections.
Trading volume did surge when the new trading rules took effect on Monday last week, with turnover soaring about 25 percent to NT$85.92 billion from NT$68.78 billion the previous trading day. However, that figure is still well below the normal level of NT$115 billion per day, and after that day investors seemingly lost their appetite for local stocks, with turnover spiraling back down to NT$74.02 billion on Monday this week.
Matching the shrinking trading volume, the TAIEX also began to drop after hitting 9,513.06 on Sept. 1.
Aside from the unfavorable domestic investment environment, the newly launched trade link between the Shanghai and Hong Kong stock markets also hit most Asian markets, and Taiwan was no exception.
All this is despite the commission’s assertion that foreign investors are still interested in local shares, as reflected by an increase in foreign funds flowing into the country. Foreign fund managers remitted US$191.7 billion in net capital as of Friday last week, rising by US$1.5 billion from the end of last month, the commission’s statistics showed. The commission insists that overseas investors have not lost interest in local stocks due to the Shanghai-Hong Kong link, adding that sub-brokerage trading has not been unusually high recently. Local investors can only buy Chinese shares via a local sub-broker.
As part of the renewed stimulus efforts, Tseng revealed that the commission is working on facilitating the internationalization of the local stock market by introducing a connection with the Singaporean bourse in the first half of next year. The link may be extended to Japan and London in the second half, he said.
However, this does not address the long-standing issue that investors are not attracted to local stocks. Based on the commission’s latest statistics, local bourse turnover has fallen 10 percent over the past decade, contrasting the increases in trading volume seen on most Asian stock markets.
Furthermore, a Cathay Financial Holding Co survey showed that investor confidence in the local stock market sank to its weakest level this year. Nearly half of the respondents said they would only buy local shares after the TAIEX drops beneath 7,500. That would mean the index would have to post a big slump from yesterday’s close of 8,859.07.
The commission needs to determine the real reasons behind sluggish investor sentiment and devise effective measures to reinvigorate investment.
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