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Economic Daily News: Strengthen economy to prevent stock crisis

Economic Daily News: Strengthen economy to prevent stock crisis

Stock markets around the world fluctuated drastically last week. First there was a global stock market crash triggered by the depreciation of the Chinese yuan and continued slowdown of China's economy. Later, upbeat U.S. economic data and expectations that the U.S. Federal Reserve might delay its decision to raise interest rates led to a global stock market rebound. In Taiwan, the stock market dropped sharply to 7,400 points last Monday and returned to the 8,000-point mark on Friday. Experience shows that the Taiwan bourse is usually deeply influenced by the U.S. and Chinese stock markets. But a few years ago when the U.S. stock market gained a strong boost from the Fed's quantitative easing policy, the Taiwan bourse saw only a limited upswing. When Chinese stocks soared in the first half of this year, Taiwanese stocks did not follow. However, when China's stock market plunged recently, Taiwanese stocks reacted quickly and tumbled by nearly 30 percent at one point. For a long time, Taiwanese stocks have been seeing more loss than gain, which demonstrates that a structural problem exists in the local stock market. The main reason is the decline in Taiwan's industrial competitiveness and weakening of the country's economic momentum. The way to stabilize the stock market is to strengthen the economic fundamentals. Last week, the government activated the National Financial Stabilization Fund to buy stocks and prop up share prices. Although this helped to stabilize market confidence temporarily, it is not the best way to resolve the problem. First, the National Financial Stabilization Fund is mainly designed to cope with stock market volatility caused by non-economic factors or international financial crisis. It should not be abused. Second, the source of the National Financial Stabilization Fund is taxpayers' money. If it is not used properly, it will let off the hook those foreign investors and big investors who are speculating on Taiwanese stocks, which violates the principle of fairness. Third, market forces cannot be reversed by "man-made" intervention. Recently, the Chinese government used 5 trillion Chinese yuan to try to save its stock market, but this only brought a few days of stability before Chinese stocks plummeted again. With only NT$500 billion, the National Financial Stabilization Fund must be used carefully. It should be used only when the stock market is affected by non-economic factors and in the case of a market failure. (Editorial abstract -- Aug. 31, 2015) (By Y.F. Low)


Updated : 2021-09-24 17:28 GMT+08:00