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Fund restrictions send shares down

Stocks of foreign issuers and of companies with assets under NT$1 billion lost more than 4 percent yesterday, likely a result of new restrictions on investments by the labor insurance fund and labor pension fund, analysts said.

While the weighted index dropped only 0.01 percent, stocks of Parade Technologies, Coland Pharmaceutical, On-Bright Electronics Co., Ko Ja Co., Ginco international Co., Integrated Memory Logic and CoAdna — all foreign issuers — had plummeted by more than 6 percent by the end of the trading. Stocks of TPK and Chailease Finance Co., two other stocks of foreign issuers, tumbled by more than 4 percent.

Tsai Chung-chun (蔡衷淳), the general manager of a Bureau of Labor Insurance (BLI) department, confirmed yesterday that the bureau had contacted private investment companies responsible for operating the labor insurance fund and the labor pension fund to demand they not invest in companies with assets of less than NT$1 billion, not to buy stocks with low liquidity and not to buy stocks with trading volume of less than 500 stock units in the past 20 trading days.

The bureau also demanded these private investment companies not purchase stocks of foreign issuers when they are operating government funds.

BLI Deputy General Manager Lo Wu-hu (羅五湖) stated that the stock prices of small companies are easier to manipulate.

Lo said the bureau's restrictions are to prevent problematic investments such as those allegedly made by former ING fund manager Hsieh Cing-liang (謝青良) in Ablerex Electronics Company (盈正豫順電子) from reoccurring.

Hsieh has been under investigation for allegedly purchasing a large number of stocks in Ablerex Electronics in an attempt to push up its stock price, and later used the labor pension fund and labor insurance fund to purchase the same stocks.

Lo stated that only a small proportion of the funds were invested in small companies. Thus, even if these two government funds stop purchasing shares in small companies the impact will not be drastic.

Legislators, FSC Disagree

The BLI's restrictions, however, have won little support from legislators. Government officials responsible for government funds were panned yesterday in the Finance Committee of the Legislative Yuan as unprofessional and were blamed for jeopardizing the stock market.

Financial Supervisory Commission (金管會) Vice Chairman Wu Tang-chieh (吳當傑) said that an investment decision should be based on the liquidity and profitability of stocks and the corporate governance of companies. The amount of assets that companies have should not be the only consideration.

1 Comment
November 20, 2012    edann77@
BLI's new restrictions are similar to rules followed by institutional investors in the west. The only critique warranted is that they (BLI) should have implemented these rules long time ago. The sudden drop in share price is mainly due to speculators jumping ship. If the politicians were honest and/or had some intelligence, then they should have supported these new restrictions but criticized the BLI for being behind the curve. Unfortunately, time again Taiwan's politicians (circus clowns) have chosen to succumb to cheap political theatrics without contemplating deeper.
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Finance Minister Chang Sheng-ford, second left; Financial Supervisory Commission Vice Chairman Wu Tang-chieh, third left; Civil Service Minister Chang Che-shen, second right; and government fund officials are quizzed by legislators in Taipei, yesterday. (CNA)

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