Vaporisation of Taiwan's stock market - the MAC effect

After ASE applied for withdrawal from the Taiwan Stock Exchange, today UMC is distributing its cash stash back to the shareholders. More "capital reduction" are on the way.

The fundamental driver is the interference from MAC (mainland affairs committee), which restricts investment in mainland China with a 40% capital cap. As for the case of ASE/Carlyle deal, special approval will be required for any company with over 1% market capitalisation of the Stock Exchange (the "ASE clause").

The reaction from the business is simple.
1) reduce capital
2) withdraw after market cap falls below the 1% threshold
3) delist
4) re-list in HK or Singapore or US
5) Free to invest in mainland as this is no long a "Taiwan" company, (with the money it raises outside Taiwan)

Even without such plan, a capital reduction is a sensible decision, as the cash does not generate any return (interest rate in Taiwan is 1-2%).

As a result, UMC's decision received praise from the market, 11% hike is share price was recorded in the ADR market already.

The dilemma for the Taiwanese business is, if everyone reduces capital, you are still above 1% of the total market. So it become a race to capital reduction. In addition, if the market reward you with higher share price, you end up with a a market capitalization much higher that you originally planned.

All these, thanks to Chen Shui Bian's political driven economic policy.

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