Asian govts may buy shares to aid tumbling markets
Vietnam, Taiwan and Pakistan face calls to intervene to boost investor confidence
NOT SO GOOD: Japan started to intervene in the stock market in 1991 when the ‘bubble economy’ burst. Interventions continued for several years, but more than a decade later, the Nikkei average is worth only a third of its value in 1989. — PHOTO: REUTERS
SEVERAL Asian governments are looking at spending billions of dollars on shares to support plunging stock markets, in a move likely to be welcomed by global investors who fear emerging markets may be about to suffer further dramatic falls, the Financial Times (FT) reported.
The move follows a 13 per cent fall this year in the MSCI Asia Pacific Index, which looks as though it will end the month with its worst first-half performance since 1992, when it sank by 23 per cent as the Japanese economic bubble deflated, the FT said yesterday.
Government officials in Taipei, where the local market dropped to a five-month low last Friday, said the Cabinet had called on government pension and insurance funds to buy more domestic shares and to hold their investments for a longer period, said the paper.
Taiwan’s economic and financial ministers and central bank officials met over the weekend to discuss how to boost investor confidence.
They stopped short, for now, of ordering the use of a NT$500 billion (S$22.5 billion) National Stabilisation Fund designed to support markets in times of volatility caused by non-economic events, said the paper. However, the board of the fund, which was last used during political turmoil after the 2004 presidential election, will meet again on Friday.
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.
And in Pakistan, the Karachi Stock Exchange (KSE) is coming under increasing pressure to use a 30 billion rupee (S$604.2 million) stabilisation fund set up last week for use in ‘volatile circumstances’, said the FT.
Last year, Karachi had one of the hottest stock markets in the world, but its loss of nearly one-third in value since April has created ’systemic risk’, the KSE said.
Official intervention to support share prices has a long history in Asia, said the FT. One of the most successful examples was in 1998, the paper added, 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 United States dollar.
Japan started to intervene in the stock market in 1991 after prices halved when the ‘bubble economy’ burst. Interventions continued for several years, but more than a decade later, the Nikkei average is worth only a third of its value in 1989, said the FT.
In Singapore, however, the Government favours a ‘hands-off’ approach to stock market volatility and does not interfere to prop up the market.
Source : Straits Times - 01 July 2008
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