Another Global Economic Miracle：Taiwan's National Fund Never Exits the Market
The Storm Media Editorial, January 16, 2023
Another economic miracle of Taiwan—a National Financial Stabilization Fund (NFSF), which protects the stock market from crashing in perpetuity, should be globally recognized!
Last week, the NFSF held its regular committee meeting and has resolved to continue to protect the stock market. If the Fund does not stop protecting the stock market at an ad hoc meeting before the next regular meeting scheduled for mid-April, this wave of protection will surpass the record of 232 days in 2015 and set a "glorious" record for the longest period of protection in history.
According to the press release issued by the Ministry of Finance (MOF) after the meeting, there are many reasons for continued protection of the stock market: from the recent global inflationary rate hike, the slowdown in economic growth, the tightening of end-consumer demand affecting Taiwan's export momentum, the war between Russia and Ukraine and the associated geopolitical and economic risks affecting international uncertainties, to the continued volatility of the global stock and exchange markets. There are both internal and external circumstances that necessitate the demand for continued protection of the stock market.
However, when you think about it, if all these factors are reasons for the NFSF to continue protecting the stock market, the Fund may never terminate and will protect the stock market in perpetuity. Since the beginning of the 21st century, the global economy, the financial markets and even the domestic economy have always been subject to similar circumstances from time to time — the dot-com bubble, the suspension of the construction of the nuclear power plant, the financial crisis, the European sovereign debt crisis, exit of quantitative easing (QE), global downturn in 2015, the Chinese stock market crisis, and finally the impact of the pandemic, Russian-Ukrainian war, and resurgence of inflation.
If there is a downfall of the Taiwan stock market, the NFSF will have to intervene to protect the stock market, and it will probably not be easy to find any time when are no factors that could disturb the markets. Most people have said it loud and clear: the stock market is the window to the economy, and the stock market is bound to rise and fall. Whether each fall reflects a weakened economic outlook, a deterioration in corporate profits, or a domestic or foreign economic or financial situation that could cause reflection of global economic and financial market decline, the stock market will eventually fall at some point, and the extent of the fall and when it will stop rising depends on both the extent of the negative factors and the policy responses of the government.
If the government needs to support and rescue the stock market, it should be using monetary policy as the mainstay. No government uses public funds to protect the stock market. In the past, when the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) was at 10,000 points, politicians lauded the NFSF as a political achievement, but now with TAIEX at a high of around 15,000 points, they are still concerned that the situation is "serious" and that a NFSF is necessary to protect the stock market.
The "historical development" of the government defending the stock market began when the stock market fell irrationally due to so-called "non-economic factors" — a typical case was the collapse of TAIEX from 12,682 points to 2,485 points in just eight months in 1979. The 1980s were the years when Taiwan's technology industry took off. It was under the administration of President Lee Teng-hui that measures were put in place to protect Taiwan's stock market in response to the severe fall — especially in light of cross-strait tensions and the cross-strait missile crisis. It was the original policy of "mobilization of the four major government funds to protect the stock market" that led to the subsequent "legalization" of the NFSF.
Therefore, it is clear that the NFSF is only justified to protect the market when non-economic factors interfere, especially in circumstances of cross-strait tensions, or when there are liquidity crises and systemic risks that could warrant intervention. Unfortunately, most politicians appropriate the stock market's highs and lows as political achievements, and it is always difficult to escape "political considerations" when defending the stock market. It is clear that the political considerations and pressure from top levels of government have prevailed over the professionalism and persistence of the MOF.
The concern is not whether the NFSF will lose or make money in the end but the high hidden costs of intervention, similar to the policy of suspending oil and electricity price increases, and the fact that most of the beneficiaries of the policy are the economically powerful, the rich and institutional investorsgoes against social fairness. Last year, foreign investors sold their holdings of Taiwan's stock market, with a cumulative total of US$13.5 billion, in a single year, the largest record amount in history.
Foreign investors must be very grateful to the NFSF for coming in to protect the market so that they could make high profits. What kind of stupid policy is this?