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Taiwan Stock Market Plan Doubted by FPP Asset as ADRs Advance

November 25, 2012

Taiwan’s plans to boost its stock market drew skepticism from Citigroup Inc. to FPP Asset Management LLP even as the island’s U.S.-traded shares jumped the most since April.

“There’s no need for them to step in and bolster the stock market, it’s totally unnecessary,” Jonathan Neill, who helps oversee $250 million at FPP Asset Management in London, including a fund that is 50 percent Taiwanese shares, said by phone from London on Nov. 23. “It’s not like their market is falling to pieces, it’s just lagging some other markets and doing better than others.”

The Taiex Index (TWSE) has fallen 5 percent this quarter, making it the third worst-performing Asian index after Mongolia and Sri Lanka, data compiled by Bloomberg show. Even after the declines, shares in the Taiex trade at an average 17.6 times estimated profit, a 28 percent premium over the MSCI Asia Pacific Index and more than valuations for South Korea’s Kospi Index (KOSPI), the Shanghai Composite Index and the BSE India Sensitive Index.

The Bank of New York Mellon Taiwan ADR Index gained 3.7 percent to 234.03 in New York on Nov. 23, the largest one-day advance in the gauge of Taiwanese American depositary receipts since April 26, following a 3.1 percent jump in the Taiex. Premier Sean Chen has asked Minister Without Portfolio Kuan Chung-ming to prepare a proposal to boost local stocks after the Taiex sank to a four-month low on Nov. 21, Cheng Li-wun, a Cabinet spokeswoman, said in an interview after domestic markets closed last week.

Rising Volatility

Banks that are part-owned by the government and state- controlled funds should buy stocks at lows, the Central News Agency cited Finance Minister Chang Sheng-ford as saying Nov. 22. About 2.2 billion Taiex shares were traded the following day, the most in four weeks, as the gauge’s 30-day volatility rose to 14.7, the highest level since Aug. 22, data compiled by Bloomberg show.

Overseas investors bought NT$12.4 billion ($426 million) more Taiwanese shares than they sold on Nov. 23, the biggest net purchases since Sept. 14, according to stock exchange data.

“The index was due for a bounce and this news definitely provides the fodder for one,” Duke Shin, director of Asia sales at Auerbach Grayson & Co. in New York, said in a phone interview on Nov. 23. “But we’ve seen these sorts of artificial supporting of the markets before in Taiwan, Korea and elsewhere and they tend to be short-lived. For an export-driven economy like Taiwan, we need fundamental improvement in global demand for a sustained rally.”

The NT$500 billion National Stabilization Fund isn’t intervening in the market at this stage, Deputy Finance Minister Tseng Ming-chung said by phone in Taipei on Nov. 23. The fund was created in March 2000 to help protect Taiwan’s markets from “significant occurrences at home and abroad,” according to the finance ministry’s website.

Lehman Bankruptcy

The government also controls four other funds through which it can purchase equities. It instructed the funds to buy shares in September 2008 as Lehman Brothers Holdings Inc.’s bankruptcy filing caused the Taiex to plunge 17 percent in four weeks. The government said it bought stocks in August 2011 to counter a two-week slump that dragged the index down by 15 percent.

Stocks have slumped this quarter on concern the global slowdown will crimp the island’s exports of mobile-phone handsets and computers. Overseas shipments unexpectedly fell 1.9 percent in October from a year earlier, the eighth monthly drop this year.

The island’s third-quarter gross domestic product expanded 0.98 percent from the previous year, the statistics bureau said on Nov. 23 in Taipei. The median in a Bloomberg News survey of economists was for 1 percent growth.

“One shouldn’t look at government intention, but rather the policy action,” Peter Kurz, an analyst at Citigroup, said by phone on Nov. 23 from Taipei. “Just because the government wants the market to go higher, doesn’t necessarily mean that it will.” His team was ranked first for Taiwanese research by Institutional Investor this year.

To contact the reporters on this story: Weiyi Lim in Singapore at; Leon Lazaroff in New York at

To contact the editors responsible for this story: Emma O’Brien at; Darren Boey at

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