3 Asian stock markets plan billions to fight volatility: report
Taiwan, Vietnam and Pakistan set aside stabilisation funds to allay market fears
(TAIPEI) Taiwan, Vietnam and Pakistan are poised to inject billions of dollars into their own stock markets soon, reported the Financial Times (FT) on Sunday.
Tough times: A scene at a Taipei brokerage last Friday, when the market sank to a five-month low
All have set aside market stabilisation funds to allay investors’ fears over the volatility of the market, and are coming under increasing pressure to utilise them.
This comes even as there has been a 13 per cent fall this year in the MSCI Asia Pacific Index, which looks as though it would end June with its worst first-half performance since 1992, when it sank by 23 per cent as the Japanese economic bubble deflated.
The Cabinet in Taipei, where the local market dropped to a five-month low last Friday, had called on government pension and insurance funds to buy more domestic shares and to hold their investments for a longer period.
Economic and financial ministers and central bank officials met over the weekend to discuss how to boost investor confidence, reported FT. They stopped short, for now, of ordering the use of a NT$500 billion (S$22.4 billion) National Stabilisation Fund designed to support markets in times of volatility caused by non-economic events. However, the board of the fund, which was last used during political turmoil after the 2004 presidential election, will meet again this Friday.
Karachi had one of the hottest markets in the world in 2007, but its loss of nearly one-third in value since April has created ’systemic risk’.
The Karachi Stock Exchange (KSE) in Pakistan is coming under increasing pressure to use a 30 billion rupee (S$604 million) stabilisation fund set up last week for use in ‘volatile circumstances’.
Karachi had one of the hottest stock markets in the world in 2007, but its loss of nearly one-third in value since April has created ’systemic risk’, the KSE said.
Meanwhile in Vietnam, state media reported that the stock exchange and securities regulator was setting up a stabilisation fund to support a market that has lost nearly two-thirds of its value this year as inflation surged.
Official intervention to support share prices has a long history in Asia, reported FT.
One of the most successful examples was in 1998, when the Hong Kong government bought shares in the aftermath of the Asian financial crisis to support the value of the assets backing the territory’s currency, which is pegged to the dollar.
Japan started to intervene in the stock market in 1991 when prices halved after the ‘bubble economy’ burst. Interventions continued for several years, but more than a decade later the Nikkei average is only worth a third of its value in 1989.
‘The success (of official support) depends on one thing only: how cheap the market is,’ said Khiem Do, head of multi-asset at Baring Asset Management in Hong Kong. ‘The price- earnings ratio has ideally to be below 10 times, or no higher than the mid-teens, and then you have some chance of it working.’
Taiwan is currently trading at about 11 times forecast profits, Pakistan at 14 and Vietnam at about 10, he said, reported FT.
Source : Business Times - 01 July 2008
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