Taiwan hangs on

Nasdaq falls shook Asian bourses. So why are fund managers still bullish in Taiwan?

Has the Taiwan government found the delicate balance of market intervention that is more right and less wrong?

The Taiwan government said this morning that it would use its NT$500 billion ($16.5 billion) National Stabilization Fund to shield its markets in anticipation of aftershocks from NasdaqÆs record falls last week.

The quake came. And the TWSE today closed 1.4% higher,áquite remarkable when one considers major indexes in the region crashed big time.

Whatever the academic argument against market intervention, the practice is gaining momentum. Following todayÆs 7% fall in the Nikkei, the Japanese government also is contemplating a 1 trillion yen ($9.45 billion) rescue fund to prop up the market. Protests from pro-market forces these days are almost inaudible compared to reactions to similar measures by the Hong Kong government not long ago.

No complaints

Taiwan fund managers are certainly not complaining. Indeed big managers, such as GP, First Global and AIG Securities, today joined the government to lead the spirited fightback, with small investors and the media as the cheering squad.

But one manager of a $3 billion fund in the region says he hopes investors would not become ôtoo confidentö. An estimated 85% of investors in Taiwan are moms and pops.

Judy Shih of Jardine Fleming in Taiwan says the company last week pared its equity holdings to under 80%.

Comments from managers contacted show four main reasons why they are not dumping.

First, investors had made adjustments on Saturday while bourses around the region were closed. Managers say this gave investors time to prepare and rethink their positions before todayÆs trading.

Second, the rescue fund announcement from the government before trading had given investors' confidence an immense boost. TaiwanÆs four biggest fund managers also made their buy positions known before market opened. The impact of these news headlines in major papers this morning cannot be understated.

Third, the Taiwan market is less crowded with pure internet plays than other indexes in Asia. Most of its tech stocks are manufacturing-based. Shih says Jardine FlemingÆs research shows TaiwanÆs TMTs (telecommunications, media and technology) has the lowest correlation to NasdaqÆs movements in Asia.

Fourth, investors have in their portfolios what they perceive to be ôthree highsö û high dividend, high growth and high price. Prominent among these are chipmakers such as TSMC and United Microelectronics. They have long been the darlingsáof fund managers because of growing orders from the US. Managers say investors also are looking forward to handsome dividends in May and June.

But will managers be in a hurry to dispose of their cash holdings? The answer is probably no. According to local reports, almost NT20 billion of new funds this month are still sitting in managersÆ fixed interests investments and on particular stocks.