In order to combat the Taiwan stock market's infamous volatility, oYcials in Taipei have come up with the idea of a National Stabilization Fund (NSF), whose job it is to intervene selectively and dampen down sharp stock market falls.
The intervention of government funds in the Taiwan equity market is not new, but what makes the NSF noteworthy is its size. The amount of capital set aside for the fund currently stands at NT$500 billion ($16 billion).
The NSF made its Wrst foray into the market during the recent presidential elections. According to Susan Chang, director general of the Department of National Treasury, the fund is only authorized to intervene in the event of non-economic shocks to the exchange, such as the literal shock of an earthquake or a military confrontation with mainland China. Both are ever present dangers.
The aftermath of Taiwan's recent presidential election, the "China eVect", had a heavy impact on the exchange at the end of March. That's partly because the election was won by a candidate, Chen Shui-bian, who refuses to bow to Beijing's demands that Taiwan accept what is known as the one-China principle.