The Taiwan Banker

In March, as the Taiwan stock market reached a new high of 20,000 points, there was a corresponding wave of ETF (index stock fund) subscriptions, which has been dubbed the “009xx craze.” According to news reports, many investors canceled their fixed deposits and took out new mortgages to participate. Hundreds of billions of Taiwan dollars rapidly poured in. The demand even overloaded the operating systems of securities brokers, causing some had to suspend new subscriptions. Officials from the Financial Supervisory Commission said that as ETFs become increasingly popular, in order to prevent celebrities from accidentally misleading investors, stronger management of investment trusts and online marketing is urgent. At the same time, they also called on the Securities Investment Trust & Consulting Association to strengthen self-discipline. These suggestions also however attracted criticism that “A truly good ETF does not need so many restrictions. Isn’t 10 yuan of stock deposits + monthly dividends + 8% yield rate good for anyone?” To be fair, the craziness in this wave of panic buying was not about unwinding fixed deposits and subscribing “all in” for ETFs. Any capital market will attract retail investors.The main reason why Japan implemented Nippon Individual Savings Accounts (NISAs) in 2014 was to change the individual savings model to allow more idle funds to enter the capital market. This ETF craze has created a stabilizing force for Taiwan stocks in the fastest possible time, a rare positive effect. Problems however arose when the media and celebrities used headlines such as “Monthly income from 600 shares exceeds NT$ 40,000” to cause investors with insufficient financial literacy to think they had discovered a new type of financial product, desperately rushing into this unfamiliar market, worried that they would not be able to keep up with the trend. Even worse, the essence of ETFs is to help investors diversify their portfolios, combining the characteristics of stocks and funds. They should have lower volatility than odd-lot or mutual fund investments, and be more helpful for medium- and long-term financial goals. However, if the income from quarterly and monthly distribution is regarded as the main purpose of ETFs, ignoring the risk of short-term market fluctuations and importance of continued accumulation of principal, then when the market trend reverses, margin calls will directly trigger investment risks. Such stories of huge losses due to investor misunderstandings have happened time and again in events such as the financial crisis and targeted redemption forwards (TRFs) in 2017; but they have also been forgotten again and again. In the future, if these ETFs with high monthly dividends only blindly pursue dividends and ignore the essential purpose of investment, we already know whether will continue to fulfill the exaggerated promises in their sales promotions. ETFs can be regarded as a good tool to achieve financial inclusion, precisely because the purpose of inclusion is to enable consumers to use useful and affordable financial products to improve their own finances. ETFs allows individual savers to invest in many companies such as TSMC, and share the dividends of Taiwan’s AI ​​wave while reducing the risk of bets on volatile single stocks in odd-lot transactions. Preventing investors whose financial literacy is lacking from being influenced by propagandistic marketing, losing their fortunes in unpredictable markets, may however be our most important task in the wake of this “craze.”