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Foreigners cautious over

Taiwan financial jitters

TAIPEI: Foreign investors' confidence in the Taiwanese stock market has plunged over recent financial crises, and fund managers said on Monday the government's handling of the aftermath would be a key to their future investments.

"One or two weeks ago we were still positive about Taiwan's stock market, but now it becomes very difficult to make any judgment since nobody knows what will happen next," said Ben Lee, a senior analyst at Nomura Securities.

Last Friday, a Taipei prosecutor detained Yang Jui-jen, a former trader at International Bills Finance Co (IBF), amid allegations he used some T$10 billion (US$372 million) of the firm's funds to manipulate stocks.

In an earlier financial scandal, depositors withdrew T$7.9 billion (US$294 million) from the Changhua Fourth Credit Cooperative in central Taiwan after the government said the union's general manager Yeh Chuan-shui and two other senior executives used T$2.84 billion (US$106 million) from the union for personal purposes.

"After the financial storms, foreign institutions have turned cautious toward their investments here and it will take a while to restore confidence," said Joe Kao, a vice president at Jardine Fleming, Taiwan.

Plagued by political tension with China and the recent financial scandals, Taiwan's stock market has plunged more than 30 percent since the end of last year. On Tuesday, the stock index ended at 4,919.11 points.

Foreign institutions are more sensitive toward financial scandals than to political uncertainties, analysts said.

"To foreigners, the financial scandals are imminent, while political tensions seem far away," said Nomura's Lee.

The government's handling of the two cases would be taken by foreigners as a key pointer to their future investments on the island, foreign fund managers said.

"The two cases show there are many problems in the government's management of the financial system," Lee said. "That is what worries foreign investors most."

"If the government handles the cases well, Taiwan will still remain an attractive market," Kao said.

The Finance Ministry said full financial support would be granted to IBF and the central bank has been injecting funds into the banking system since last week.

Authorities have also said that they would intensify financial inspections in the future.

Although foreign institutions may turn cautious in the near term over the financial instability, securities analysts agreed that the Taiwan stock market remains attractive to foreigners in the long term as the local bourse has been sharply oversold in comparsion with other markets.

Foreigners bought actively in Taiwan stocks last month at the time when political tensions between Taiwan and China mounted over China's missile tests near the island.

They posted a net funds inflow of US$566 million in July, setting the highest single-month total so far this year, the central bank has said.

Under current regulations, foreign institutions can invest up to 12 percent of total market capitalisation in the domestic stock market.-Reuter