National Stabilization Fund decides to extend operations

TAIPEI (CNA) — A decision by the National Financial Stabilization Fund to stay in the equity market until the end of the COVID-19 pandemic is expected to temper volatility in the local equity market, according to analysts.

“The presence of the stabilization fund is expected to calm investors’ nerves and continue to act as an anchor to prevent volatility at a time of continued virus spread worldwide,” Hua Nan Securities Investment Management Chairman David Chu (儲祥生) said.

The stabilization fund commission held its quarterly meeting Wednesday and authorized the fund to remain in the equity market and intervene if necessary, until the end of the pandemic.

The NT$500 billion (US$16.89 billion) stabilization fund was set up in 2000 by the government to serve as a buffer against unexpected external factors disrupting the local bourse.

On March 19, the commission authorized the fund to step in as the local equity market came under heavy downward pressure amid escalating fears over COVID-19, which was sending ripples through the global economy.

As of Wednesday, the weighted index on the Taiwan Stock Exchange (Taiex) had gained about 40 percent from a recent low seen on March 19 during the 118 days of the fund’s stay in the market.

“Although the Taiex has bounced back significantly, the gains largely came from high liquidity instead of good fundamentals,” Chu said. “Now the market is concerned about a second wave and even third wave of infections after economic reopening, so if the stabilization fund decides to withdraw from the market now, panic could have set in despite the recent significant rebound.”

After the quarterly meeting, Vice Finance Minister Juan Ching-hwa (阮清華), the fund’s executive secretary, said since the fundamentals of the local equity market remain dictated by COVID-19 and economic uncertainty continues, the commission authorized the stabilization fund to stay even though the market has been driven by high liquidity on the back of fund inflows.

According to Juan, the stabilization fund spent NT$760 million buying equities from March 20 to June 30 but has not poured any funds into the market since the beginning of July.

The stabilization fund, Juan said, recorded NT$183 million in unrealized profit from its latest intervention plus NT$2.04 million in cash dividend income, which represents a return of about 24 percent.

Commenting on the strong gains on the Taiex, Mega International Investment Services Corp. analyst Alex Huang (黃國偉) said investors should remain alert over a possible major pullback as the local equity market is overvalued.

The next quarterly meeting of the stabilization fund is scheduled for mid-October and will decide whether to continue fund operations based on the latest developments of the pandemic.