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Who really profits
from government stock buy?
By Paul Lin 林保華
A number of big firms on Wall Street — and likely politicians in cahoots with
them — took advantage of the recent US debt ceiling showdown, pressuring the US
government to unleash a third round of quantitative easing. The firms managed to
profit from this, while also stirring up the global market.
It is common for stocks to fluctuate and the trick is knowing how to ride the
fluctuations to make money. This risk in stock markets means it is important for
investors in Taiwan to be cautious and not rely on the state-owned National
Stabilization Fund (NSF) to intervene and prop up the Taiwan Stock Exchange
every time the waters get choppy.
The TAIEX shed 464 points on Aug. 5, and US markets suffered later that day,
too, because of the combined actions of major international players. Who knows,
the decision by Standard & Poor’s to downgrade the US’ credit rating may have
been coordinated. It is difficult to say.
Following the TAIEX’s major slide, President Ma Ying-jeou (馬英九) called a press
conference on Aug. 6 to boost confidence in the market, talking about healthy
economic fundamentals and 5 percent economic growth. Some investors undoubtedly
believed him and anticipated that the NSF would intervene to protect the local
bourse.
Those who did, and who subsequently went bargain hunting when the markets opened
on Monday, or those who decided to hold off on selling their portfolios, almost
certainly ended up seeing their finances shrink before their eyes.
The TAIEX fell 300 points on Monday and another 400 before recovering on
Tuesday. The exchange had already fallen by 800 points the previous week and
these two bruising performances hurt private investors.
When the NSF enters the market, it is more likely to be competing with private
investors for bargain stocks than to be propping up the local bourse. This is a
tussle private investors cannot win because they do not have the same access to
market information that the NSF has.
This is how the NSF acts under normal conditions. However, these are not normal
conditions because there is the potential for insider trading resulting from the
lack of separation between the Chinese Nationalist Party’s (KMT) assets and the
state.
Consider this scenario: The president or government officials boost investor
confidence, private investors either go on a buying frenzy or decide to hold on
to the stocks and the KMT dumps stock from its own assets at the opportune
moment. These stocks are then bought by private investors. However, panic hits,
prices are slashed and investors sell to contain the damage. Then the KMT and
the NSF step in and buy up the shares at bargain basement prices.
During the 2008 financial crisis, government officials continued to try to keep
confidence up as the TAIEX continued to fall. One investor after another was cut
down, while the NSF made a tidy profit of NT$33 billion (US$1.14 billion) and
KMT asset dividends were NT$2.9 billion last year, all at the expense of private
investors.
During the current stock market crisis, overseas investors have been dumping
stocks of electronics companies, while investment trusts and dealers have been
dumping shares of companies in the traditional manufacturing as well as
construction industries — stocks which were popular prior to the crisis. Is the
hand of the KMT’s assets fund behind this, too?
On Tuesday, some stocks dropped to their lower single-day trading limit, before
rising to their upper limit, representing a potential one-day profit of 10
percent. Will the government investigate these cases?
Paul Lin is a political commentator.
TRANSLATED BY PAUL COOPER
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