Taiwanese authorities are set to use the island’s stabilisation fund to intervene in equity markets and prop up prices.
The government will buy stocks in response to a plunge in global share prices, which have roiled Asia Pacific’s economies in recent days.
Simon Chang, vice premier of Taiwan’s National Financial Stabilisation Fund, said its fund managers had been authorised to buy stocks, in a bid to stabilise Taiwan’s equity market and boost investor confidence.
It comes after the Taiwan Exchange weighted index sank 4.8% to close at 7,410 points on this week’s so-called Black Monday (August 24). The benchmark index rebounded by 3.58% yesterday after the government announced its intervention, but the index has dropped 17.5% this year as of yesterday.
Wu Tang Chieh, Taiwan’s vice finance minister, said the Taiwan equity market was performing worse than other markets in Asia, Europe and the US. As a result it required the Fund to stabilise the market and boost investors’ confidence.
Wu said the Fund would buy stocks depending on market conditions - without defining “conditions” - but the intervention had not been executed as of yesterday.
Tseng Ming Chung, head of Taiwan’s Financial Supervisory Commission (FSC), said the regulator would monitor global financial markets and could launch policies to stabilise the market at any time.
Officials yesterday said they could not confirm when they would exit any planned interventions.
The National Financial Stabilisation Fund now owns total assets of TW$500 billion ($15.4 billion), with TW$300 billion coming from the island’s four big funds – the Public Service Pension Fund, Labor Pension Fund, Labor Insurance Fund and the Postal Savings Fund. The Fund has entered the market five times since it was founded in 2000.
Taiwan equity has underperformed regionally due to the island’s export-sensitive economy. Over the weekend the FSC announced it would ban the short selling of stocks below the previous day’s closing price.
“It is too early to judge if the market can be stabilised,” said Jerry Yang, Taipei-based strategist at Nomura International. “We need to see several factors - the first is whether trading volume can increase gradually, the second is if [investors] can see more clarity of future demand.”
Asian equity markets rebounded yesterday, with the exception of China and Japan. China’s slowdown has been blamed as the key cause of the regional market rout, amid other global uncertainties, such as commodity price falls and the upcoming US interest rate lift-off.
Kelvin Tay, Singapore-based regional chief investment officer at the wealth management arm of UBS, said Asia Pacific had felt the pain of the China slowdown, and China was at the heart of any potential improvement in regional confidence. He noted Taiwan, India and Singapore were currently the most preferred markets in the region.
The Taiwan market accounts for 14.78% of the MSCI Asia ex-Japan Index.