Taiwan Sees Right Conditions to Support Stock Market

By Janet Ong

Sept. 18 (Bloomberg) -- Taiwan's government said ``conditions are right'' for the state-owned fund to buy stocks as it expects volatility in global markets to persist after the benchmark index fell to its lowest in four years.

Taiwan's National Stabilization Fund is monitoring domestic markets and ``will intervene to stabilize the market when needed,'' the Cabinet said in an e-mailed statement today. The Taiex Index fell as much as 4.7 percent to its lowest since Aug. 4, 2004, before the announcement.

The government on Sept. 16 asked the nation's four major funds and state-controlled banks to buy shares to help reverse the stock market slump triggered by Lehman Brothers Holdings Inc.'s bankruptcy and the U.S. government takeover of American International Group Inc. Taiwanese financial institutions and investors have about NT$80 billion ($2.5 billion) tied to Lehman-related securities, the financial regulator said.

``The government is intentionally ignoring the primary condition for the national stabilization fund to enter the market, that is when non-economic factors affect the market,'' said Ernest Chiang, who manages the equivalent of $71 million for IBT Asset Management Co. in Taipei. ``They didn't say they'll definitely enter the market. It's just words.''

The National Stabilization Fund is used to support the markets ``when domestic or international incidents, or big movements by global funds hurt public confidence, resulting in disorder in the capital and financial markets, which may hurt stability,'' the statement said.

Ample Liquidity

The fund was created in March 2000 with NT$500 billion ($15.5 billion).

The banking system has ample liquidity and the asset quality of Taiwanese banks has improved in recent years, the central bank said in a statement today after the markets closed. The lenders have a capital adequacy ratio, a key measure of financial strength, of 10.58 percent as of the end of June, the central bank said, without giving a comparative number.

Taiwan lenders have total liquidity of NT$5.65 trillion, of which NT$2.06 trillion are deposits with the central bank and NT$3.59 trillion are certificates of deposit issued by the central bank, the statement said.

`Some Time'

The effect of fluctuations in global financial markets on Taiwan is likely to continue for ``some time,'' and is one of the factors that was considered by the Cabinet committee in making the decision, Finance Minister Lee Sush-Der said in a briefing in Taipei today. Lee declined to say when the Fund will buy stocks and what it plans to invest in.

The government controls the Civil Service Pension Fund, the Labor Pension Fund, the Labor Insurance Fund and the Postal Savings Fund, which have combined assets of about NT$5 trillion, according to Bloomberg's calculations based on the funds' statements of assets.

The Taiex index fell 2.7 percent to close at 5641.95, its lowest since Oct. 28, 2005.

Cathay Financial Holdings Co., the largest financial- services company, fell by its 7 percent daily limit to NT$45.60, near a three-year low. The company said it holds NT$1.05 billion of Lehman-related securities.

Fubon Financial Holding Co., Taiwan's second largest financial company by market value, fell by its daily limit to a record low of NT$21.90. The company said it holds NT$800 million of Lehman securities, while its banking unit has $15 million and its insurance units have $12 million. Chinatrust Financial Holdings Co. fell by its daily limit to NT$14.85, its lowest since Oct. 21, 2002.

To contact the reporter on this story: Janet Ong in Taipei at jong3@bloomberg.net