The Taiwan Banker

The Taiwan Banker

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Editor in Chief, The Taiwan Banker
Hank Huang (黃崇哲)
The Rebirth of Taiwanese Equities 2019.12 The Taiwan Banker NO.120

With double-digit economic growth for many years starting in 1985, Taiwan’s private income grew sharply. Due to limited investment channels, large amounts of funds have flowed into the equity market. Back in the day, with office workers secretly using radios in their drawers to hear “Taiwan Cement, NT$ 305 to buy, NT$ 306 to sell…FET, NT$ 152 to buy, NT$ 153 to sell…” or grannies from all walks of life carrying vegetable baskets, huddled in front of the stock ticker TV, watching the red and green numbers flash past. In just four years, we have witnessed the stock market explode 10-fold. The roller coaster emotions of volatility have left an indelible mark on Taiwan’s capital market development.

On February 12, 1990, the market climbed to a historical peak of 12,682 points, before slipping due to the Securities Trading Tax. There were several subsequent back-and-forths. The 1995 missile crisis, 1997 Asian financial crisis, 2000 internet bubble, and 2008 financial crisis each took the market to more or less 10,000, but it was never sustained. This 10,000 mark has turned into a campaign slogan for politicians.

Starting last year, stocks experienced another rarely-seen run. At first, perhaps due to apprehension after having been away from Taiwan for so long, plus the trade war and public reservations, investors didn’t dare hope for too much. To the surprise of the naysayers, though, after so many years of a stagnant economy, things turned out different this time. Thanks to industry growth, not only has Taiwan become a regional growth leader amidst the trade frictions between the US and China, but also the market has maintained the 10,000 mark for the longest time in market history, recovering its past strength.

Even amidst the good news, however, the celebrations of past years have not reappeared. On the contrary, many retail investors even complained of losses. The reason for this gap in perceptions, despite the index figures, may be that the market today acts in completely new ways. It may be gradually maturing from its past animal spirits into a new form.

Today’s, stocks are no longer just a repository of excess domestic savings; connections have been gradually established with international capital markets. Thirty years ago, the share of foreign capital ownership was almost nothing. Now that it has greatly increased, the dramatic short-term volatility caused by individual investors chasing patterns has been diluted. The modernization and integration of the securities market and regulation have improved transparency and investor protection. Meanwhile, infrastructure allowing for fully electronic trading has made more diverse financial products and investment methods available. These changes are the concrete manifestations of the rebirth of Taiwan’s stock market.

It has already become hard to imagine what it would be like if prices for the 1,000 stocks in the current market were announced over the radio, one by one. Going forward, the market will continue its transformation. Particularly as the population structure continues to become older, both short-term and long-term investment will play important roles. A combination of new fintech technologies, including big data and AI, will give investors a greater range of risk management choices between active and passive investment.

The enthusiasm of the past may not return, but as Taiwan’s industry re-adjusts, its financial sector should also be increase its prominence in the international capital market. In addition to supporting industry transformation, driven by sectors with higher value-added, the stock market also needs to better protect privately accumulated wealth.