From the end of last year through the beginning of this, the stock market on Taiwan has continued to climb, and many first-time investors have entered the market. Some people say that the era of the stock market's "popularization" has arrived.
Is this really so? A look at some figures will give us an answer.
The Republic of China on Taiwan has around 147,000 stockholders, less than one percent of the total population. This is a far cry from Japan's 14 percent and the United States' 19 percent.
The ROC's per capita income is no lower than four or five times that of Japan and the U.S., and its per capita savings rate is the highest in the world. So why should its proportion of stock market investors be nearly 20 times less?
Travelers abroad have pointed out that in Japan brokerage companies have set up service counters in department stores and supermarkets, and stocks are sold like cosmetics. And in the U.S., citizens learn about the stock market in high school and read about it constantly in magazines and newspapers. Because the stock market is a part of daily life in those places, stockholders range all the way from old folks in the park to students in school.
In the ROC by contrast, because the policy in the past had always been to encourage saving rather than investment, "stock," to the ordinary citizen, has remained something of an abstract term.
According to Leon Hu, director of the ROC Institute of Securities Market Development and formerly of Merrill Lynch in the U.S., this is because stocks have never been accorded the importance they deserve on Taiwan. He cites his own case as an example: "For over a year after I came back, all I heard was government officials calling for high-technology personnel to return to the country, but I never heard anyone call for personnel from the capital market."
He points out that we are constantly studying American technology, but that we haven't learned the real spirit that lies behind it. In the U.S., aerospace companies, IBM, GM, and other major firms are all stock corporations, and they all raise money on the capital market to continue research and expansion.
"Our situation is strange. Companies don't seem to need to raise money on the stock market; rather, they get it from banks or through underground financing," Hu says.
The problem is, money raised from investors can be used by the company freely, without pressure to return it, while borrowed money must eventually be paid back. As a result, while 80 percent of domestic firms are wasting time juggling loans and trying make payment deadlines, stock corporations in the U.S. and Japan are concentrating their energies on developing technologies.
"It's like running a race barefoot against someone with track shoes," Hu says.
"In the past we were mostly labor intensive light industry," Shen Po-ling of the Ministry of Finance points out, "so our capital needs were small, and borrowing from the bank was all right. But now that we are advancing toward capital-intensive high-technology industry, we need capital, and the best way to raise it is on the stock market."
The government is well aware of the trend. One of the eight topics at the 1986 National Development Seminar was "the development of the capital and monetary markets." And it is taking action. To strengthen the viability of the stock market, the Ministry of Finance is working on toughening auditing, regulation, accountability, and other measures. At the same time, the Executive Yuan is drafting a new bill on investment securities for consideration by the Legislative Yuan.
The fact remains that only some 130 of Taiwan's 600,000 enterprises are listed on the stock market. One reason is simply that family-owned businesses don't want to share the company with outsiders. But another reason is that many firms feel that on the stock market "you can't get help when you need it." Indeed, new stock issuances must pass rigorous scrutiny before they can be placed on the market, to protect the interests of investors. As a result, those companies that qualify to issue stock often don't need the money, while the firms that are crying for cash can't get on the market.
At present, even though the new law has not yet been passed, stockbrokers are already making preparations. One brokerage firm, besides expanding equipment and training personnel, is actively seeking experienced partners in the U.S. and Britain.
In fact, internationalization and liberalization are strong trends in the stock market. Over 40 percent of investors on the domestic stock market are individual investors, which lowers the market's stability. To increase the proportion of institutional investors, which stress long-term investments, the government very much welcomes investments by foreign institutions.
In addition, because these institutions, with their rich financial experience and expertise, can have a supervising effect on domestic corporations, the government last year approved the formation of four international mutual investment fund companies, which together took in US$100 million in overseas investment.
"Our economic growth rate has averaged 8.5 percent over the past ten years, an accomplishment which is the focus of world attention. Like a growing adolescent, full of boundless potential, we're of great interest to overseas investors," says Shen Po-ling, explaining why ROC stocks are desired so much by foreign investors.
Since foreigners are so eager to share in the future growth of Taiwan's enterprises, why should the local populace, which in the past has looked on stocks so coolly, leave all the spoils to others?
[Picture Caption]
The Taiwan stock exchange was recently computerized. Photos show the floor of the exchange before (left) and after (right). (l. courtesy of the United Daily News Information Center; r. photo by Arthur Jeng)
Because of their high profitability and bright prospects, the stock of high technology firms has been much in demand. (photo by Arthur Jeng)
The Taiwan stock exchange was recently computerized. Photos show the floor of the exchange before （left） and after （right）. （l. courtesy of the United Daily News Information Center; r. photo by Arthur Jeng）
The Taiwan stock exchange was recently computerized. Photos show the floor of the exchange before （left） and after （right）. （l. courtesy of the United Daily News Information Center; r. photo by Arthur Jeng）
Crowds of the "new breed" of investors have been attending evening investment seminars.
Because of their high profitability and bright prospects, the stock of high technology firms has been much in demand. （photo by Arthur Jeng）
