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Gov't takes action to limit short selling

After a steep slump on Nov. 21, the downward trend in Taiwan stock prices was checked somewhat by a government measure to rein in short selling and stem a flight of capital.

The weighted index ended the day at 7000.03, down 42.61, on a turnover of NT$89.668 billion. Other stock markets in Asia saw steeper falls yesterday.

The market opened on an upbeat note as the Financial Supervisory Commission (FSC, 行政院金融監督管理委員會) moved to restrict short selling with borrowed securities as an indication of the government's resolve to prop up stock prices.

Even market analysts were confident the move could somewhat mitigate the selling pressure on banking stocks as the volume of transactions in borrowed securities was capped at 20 percent of “the average daily volume of the immediate previous 30 trading days.”

The measure, coupled with an anticipated meeting between FSC Chairman Chen Yuh-chang (陳裕璋) and Shang Fulin (尚福林), Beijing's China Banking Regulatory Commission (CBRC), which was scheduled for yesterday, on a possible deregulation of investment in mainland China by Taiwan's banking sector, did induce a rally, most notably in banking shares.

Stocks in Mega Holdings (兆豐金), Fubon Financial (富邦金), Cathay Financial Holdings (國泰金), China Life Insurance Co. (中壽) and EnTie Bank (安泰銀) rose within a 1.3 percent to 3.5 percent range in mid-morning trading. Stocks in Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC台積電), the China Steel Corp. (中鋼) and Hon Hai (鴻海) also went up within a 0.3 percent to 2.5 percent range.

Mega Holdings, said to be a potential early beneficiary of a possible agreement between the two sides, last week secured approval from CBRC for its investment in a Suzhou Branch in the vicinity of the mainland coastal port city of Shanghai. The branch is expected to become operational early next year. The per share earning (EPS) of its stocks for the first 10 months of the year is estimated at NT$1.41.

News that the U.S. deficit reduction negotiation had ended in an impasse trounced stock prices, however, shattering investors' confidence and dragging the weighted index to below 7,000 points before renewed volatility set in.

According to a market analyst, this showed short selling was too rampant to rein in and that the government measure to curb short selling might be not effective in stemming the capital outflow.

Foreign investors have more tricks up their sleeves than simply short selling, such as short selling in the spot market and futures options, Marbo Securities Consultant Co. (萬寶投顧) President Tsai Ming-chang (蔡明璋) said, adding local investors were short selling too.

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