Thursday, December 22, 2011

Ma Administration takes steps to goose the stock market ahead of the election

The Ma government took two steps aimed at pushing up Taiwan's fading stock market ahead of the election this week. First, as AP notes in WaPo, the government is allowing Chinese banks to purchase pieces of Taiwan banks.
The commission says individual Chinese banks will be allowed to take stakes of up to 5 percent in Taiwanese banks. It capped total Chinese ownership, including by institutional investors, at 10 percent.

Investment by Chinese banks can give Taiwanese lenders access to China’s lending market and bolster their earnings.
Cross-strait financial investments like these are one of the most important goals of Beijing/Ma's economic integration program and the big financial houses backing the Ma administration. This may push the market up.

A second move was announced as well...Taiwan shares jumped as the government announced the commitment of funding from the national stabilization fund to shore up the stock market:
"The announcement of the National Stabilization Fund's possible intervention in the local stock market has successfully bolstered market sentiment, as investors hailed the long-awaited show of strong government support," MasterLink Securities analyst Tom Tang said. Vice Premier Sean Chen said Tuesday that in the wake of the death of North Korean leader Kim Jong Il, which could lead to instability in the region, the NT$500 billion (US$16.4 billion) National Stabilization Fund would enter the stock market.
Kim's death provides a convenient excuse for buying votes on a galactic scale by using public money to subsidize wealthy investors while appearing to spark the market for Taiwan's tens of thousands of small players. Let's not forget that a major institutional investor in the market is the KMT itself, through its large Party-owned investment company. But there's no conflict of interest there....not that any of the major international media will ever report that, either...

The stock market has an outsized influence on the way Taiwanese view their own economic performance, which is probably another reason people panic or cheer depending on what its doing. Recall that in 2008 Ma benefited from what appeared to be a coordinated effort by foreign analysts to pump the Taiwan market in the run-up to the election. It promptly began sliding the day he swore in, and hasn't recovered since.

Polaris cut Taiwan's growth prediction next year to below 4%, a move that I suspect heralds further downgrades of Taiwan's economic performance next year. If Tsai wins, she is going to inherit a formidable economic mess exacerbated by whatever damage the KMT can do in the four months between the election and the transfer of power, and by the intransigence of Taiwan's nigh-on useless legislature.
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Unknown said...

His dis-interested position on propping the market, might hurt Taiwan quite a lot as the global economy is not what it was when Chen and Lee did might leave Taiwanese holding the bag on shares that the government overvalues by this injection compound this with a diminishing export market for the products these company shares are implicitly designed to generate....or is it intended for other interests?

Anonymous said...

As an investor, this is not sufficient to make me happy. The KMT was vehemently promising me that the stock market would hit 10000 by the end of the year. Even if they goose the market now, they're going to be at least 2500 points short. Taking steps to stimulate the market just serves to remind me how unhappy I am with the market.

Michael Turton said...

Heh. Not to mention "Why didn't they do this sooner?"


Anonymous said...

It is amazing that the Taiex went from 66xx a few days ago to 71xx today.

How much $$ is the throwing away on this? Can they really afford it? It is a joke. The EU banking system and the global economy is on the verge of collapse.

In Taiwan the Hsinchu Science Park announced revenues were down almost 13% yoy just the other day. There is not going to be a recovery.