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Stabilization fund earns high return from latest market intervention

01/12/2024 03:36 PM
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CNA file photo
CNA file photo

Taipei, Jan. 12 (CNA) Taiwan's National Financial Stabilization Fund earned a return of 20.7 percent on the stocks it bought while intervening in Taiwan's stock market from July 13, 2022 to April 13, 2023, according to a Ministry of Finance (MOF) statement.

The stabilization fund, set up to help mitigate market volatility, released the updated financial results at a regular fund committee meeting held Thursday.

The fund committee said it poured about NT$54.51 billion into the market during the nine-month period to counter volatility resulting from the U.S. Federal Reserve's aggressive rate hikes that pushed its federal funds rate from zero in early 2022 to 5.25 percent by July 2023.

After fully withdrawing from its intervention by mid-April 2023, the National Financial Stabilization Fund calculated that it pocketed almost NT$11.3 billion (US$362.88 million) in gains, according to the Ministry of Finance (MOF).

The gains, which amounted to a rate of return of 20.7 percent, included cash dividend income of NT$1.38 billion, the MOF said, but it did not provide any further breakdown of the stocks it bought and the returns it made.

The stabilization fund was called into action in July 2022 a day after the Taiex, the benchmark weighted index on the Taiwan Stock Exchange (TWSE), dipped below 14,000 points for the second time that month after having spent most of the first quarter at around 18,000.

Escalating concerns over the spike in interest rates in the United States, taken to combat high inflation, were sending global financial markets into a tailspin at the time.

The NT$500 billion stabilization fund was set up in 2000 by the government to serve as a buffer against unexpected external factors that might disrupt the local bourse.

Its intervention over the nine months spanning July 2022 to April 2023 was the eighth time in its history that it got involved in the market to stabilize share prices and its longest intervention ever, covering 275 days and 181 trading sessions.

Deputy Finance Minister Juan Ching-hwa (阮清華), the fund committee's executive secretary, said the Taiex surged 13.29 percent during the intervention period, showing that it helped the local stock market turn healthier.

The stabilization fund's intervention shored up investor confidence and pushed up share prices without having any negative impact on market movements, living up to the fund's goal of smoothing out market volatility, Juan said.

The NT$54.51 billion invested was the fund's third largest intervention in its history, following the NT$60 billion it invested in 2008 and NT$120.10 billion it invested in 2000, according to the committee.

Juan said that although the Taiex has performed well in the past eight months to rebound to the 17,000-point level, the fund committee will continue to watch how markets at home and abroad perform to react promptly to any volatility.

In 2023, the Taiex rose 3,793.12 points, or 26.82 percent, largely due to soaring interest in artificial intelligence development and hopes that the U.S. Federal Reserve will start to cut interest rates in 2024.

(By Chang Ai and Frances Huang)

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