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Aug 23, 2015

Asian countries move to mitigate stock market decline

Taiwan bans short-selling, China allows pension fund to invest in stocks

Taiwan’s Financial Supervisory Commission (FSC) has restricted short-selling of borrowed stocks in the country and China has moved to allow its main pension fund to invest in stocks for the first time as Asian regulators struggle to deal with rapidly declining stock markets.

The moves follow heavy losses in Chinese stocks that began in mid-June and accelerated earlier this month when the government moved to devalue its currency. Other countries in Asia and elsewhere have also suffered sell-offs in recent weeks on signs Chinese economic growth is slowing sharply.

The FSC prohibited short-selling of borrowed stock at prices below the previous day’s close in a weekend announcement after the country’s TAIEX benchmark stock index fell more than 3 percent on Friday, bringing losses to more than 5 percent last week, according to the Taipei Times.

‘Due to the Dow Jones Industrial Average’s 530-point plunge, we think it necessary to implement the new measure to prevent further short-selling,’ says William Tseng, chairman of the FSC, in an interview with the newspaper. He also says the government has asked the Taiwan Stock Exchange and the Taipei Exchange to arrange earnings conferences by Taiwanese companies whose stock may have been oversold in recent weeks.

‘The conferences will help investors understand more about the earnings potential of those companies, which will lead to them buying shares, boosting stock market turnover,’ Tseng says.

Elsewhere, China announced over the weekend that it will give the country’s basic endowment pension fund permission to invest in stocks for the first time. Draft regulation says the fund will also be able to invest in stock funds, private equities, stock index futures and treasury futures. Total investment in the instruments won’t be allowed to exceed 30 percent of the fund’s net value.

Meanwhile, in South Korea, the Finance Ministry warned investors that it will act pre-emptively after the nation’s largest exchange-traded fund suffered record withdrawals.