Stabilization fund authorizes intervention in financial markets

CNA file photo
CNA file photo

TAIPEI (CNA) — The management committee of Taiwan’s National Financial Stabilization Fund determined Thursday that the legally-defined conditions for its intervention in Taiwan’s financial markets have been met, allowing a possible injection of funds as soon as Friday.

The Executive Yuan announced the authorization at an evening press conference attended by Cabinet spokesperson Kolas Yotaka, Finance Minister Su Jain-rong (蘇建榮) and Juan Ching-hwa (阮清華), the fund’s executive secretary.

The move follows several days of turmoil on international stock markets, which have suffered amid the growing economic fallout from the COVID-19 pandemic.

In the United States Wednesday, the Dow Jones Industrial Average fell by 1,338 points, or 6.30 percent, dropping below 20,000 for the first time in three years. The Nasdaq Composite fell 4.7 percent, while trade on the S&P 500 index was briefly halted due to steep declines, before closing down 5.18 percent.

On the Taiwan Stock Exchange (TWSE), meanwhile, shares plummeted 300 points at start of trade Thursday and finished down 537.33 points, or 5.83 percent, at 8,681.34.

Su said the authorization would give the fund flexibility to act, and increase investor confidence, amid a week in which the TWSE has seen steeper declines that many of its international counterparts, and efforts to stop the spread of the coronavirus have struggled in both Europe and the Americas.

In just one month the TWSE has fallen more than 26 percent from a high of 11,6758 points on Feb. 19.

Although the TWSE lost more than 500 points on Thursday, turnover remained solid at NT$270 billion (US$8.86 billion), Su said, adding that the fund nevertheless needs to make preparations, given the current market volatility.

The stabilization fund has utilizable funds of NT$500 billion, NT$200 billion of which consists of stock held by the National Treasury. In the past, it has used NT$120 billion of those funds, most recently during a 2015-2016 intervention valued at NT$19 billion, he said.

The fund’s other NT$300 billion is comprised of borrowings from Taiwan’s four major public funds — the Postal Life Insurance Fund, Labor Insurance Fund, Labor Pension Fund and Civil Servant Fund, as well as the Postal Deposit System — according to its operational charter.

In practical terms, Juan said the fund is operated by a professional team at the Bank of Taiwan, who decide when to stage an intervention based on their professional judgment, rather than specific quantitative standards.

It’s not like the media says, that they intervene when markets hit a ten-year low, he said, explaining that overall market conditions, the imposition of trading curbs, and irrational investment behavior are all factors that inform the decision.