When the crash came, it turned overnight millionaires into overnight paupers. From a peak of 12,495 points on February 10, 1990, the index dropped 60 percent to 5,047 points in less than five months. The total market value of the listed stocks fell from US$260 billion to US$107 billion.
A great number of investors are now left without savings, without means to pay for their homes, and with other overwhelming debts. FCR interviewed four market players who are still spinning from the shock of it all. As one of them said, "Who could have foreseen that the stock market would collapse?"
(The names of the interviewees have been changed)
Mrs. Chan, 58, housewife:
FCR: When you entered the securities market in 1963, only two years after the Taiwan Stock Exchange opened, did you feel your timing was right?
Chan: I did it for fun. There were several of us in the group—all housewives. The stock market was really more a place for us to get together than to do business. At that time one could buy and sell stocks on the same trading day. So we would stay in the securities company for a while, have a cup of tea and snacks, and gossip before going home to make dinner for our families.
No one disturbed us; there were very few private investors then. I haven't been active all the time, but altogether I've been playing the stock market for more than ten years. When the Taiwan stock market began operation, there were only forty to fifty listed stocks. Prices were really low, and shares were rarely selling for more than US$.25. For less than US$250 one could have a 1,000-share lot of bonus stocks in Formosa Plastics Corporation or the other companies whose stocks are now worth a fortune.
FCR: How much did you invest in the stock market? Did you make money?
Chan: In the beginning, stock earnings were only a little bit better than interest earnings from bank savings accounts. Most of my friends thought buying stocks was an investment, not speculation. You really couldn't make quick money then.
I went to the securities market about once a week. Each time I bought a lot or two, sometimes more. Since the stock prices were low, I could afford to buy a few lots with my budget of US$1,250. But I didn't keep to the same pattern throughout. I invested more money and went to the securities market more often after 1988. More and more small investors were getting caught up in speculation, and so was I. I went two to three times a week to check on my stocks; the market would change from bull to bear abruptly. I've been gaining hefty profits the past few years- until this year.
FCR: Did your life and that of your family's change as a result of your deep involvement in stock market speculation? What did you do with the profits you made?
Chan: Sometimes the stress was too much. My husband did not interfere with my investments, but he has a negative attitude about taking risks with money. My family life did not really change, and there were no changes in our way of living and spending either. Some big gainers became big spenders, while some were cautious about investing further. I was very happy each time I made money, but the money didn't change my life. I'm still a housewife.
FCR: Since the market began plummeting in February, did you lose money or are you now trapped in the stock market?
Chan: I lost two-thirds of the money I gained last year, but not my capital. I'm trapped, but I'm not in too deep. I still have 6,000 shares I can't get rid of. I've decided to wait them out, although I don't think there will be any more golden opportunities in the stock market in the next year or two.
Ms. Wang, 43, single; teacher of flower arranging and cooking:
FCR: How much of your money is tied up in the stock market?
Wang: Over US$100,000.
FCR: Why did you start investing in the stock market?
Wang: It started two years ago. I had some money which I had earned from teaching and from a previous job as a nutrition department head in a food production company. The money was just sitting there, and since the stock market was the only place where the earnings were good and legal, I decided to try it.
Stock certificates from the badly battered Taiwan Exchange one investor worries that there may not be much use for them "aside from wallpaper."
There wasn't much activity in my account in the initial stage because, unlike some speculators, my plan was to make some long-term investments. Then I left the country for a while. When I returned last year I found that dabbling in stocks had become the hottest activity on the island. It was also about that time that housing prices in Taiwan began soaring. They were four or five times over the market price when I was last in Taiwan.
It was impossible for me to buy my own house. In fact, most people could not buy a house out of their salaries and savings. So I put more of my money in stocks. At that time the Taiex index was about 9,000 points. Then it began to fall in February this year from about 12,000 points. Who could have foreseen that the stock market would collapse? Today the Taiex index is less than 5,000 points. I am really trapped. I've always held on to my stocks, never sold them, so I never had the opportunity to enjoy the money I could have made.
FCR: Will the loss affect your life? Your plans for the future?
Wang: At this point it hasn't really affected my material life. After all, the money trapped in the stock market was originally set aside for long-term investments. But I do know some investors whose losses were so severe that they have endangered their families. Some have sold their houses to pay their debts, having borrowed heavily so that they could buy more stocks. Some couples have divorced because the financial loss destroyed the harmony of their marriage. I have even heard that there are people who have committed suicide. I hope they are only rumors.
FCR: What are you going to do with your stocks?
Wang: What can I do? I will just leave them there and then I will pray that the stock market will rally again. I am desperately in need of money. I might have to sell my stocks. I just hope that there will be some use for them aside from wallpaper.
Mr. Fung, 30, married; a trading company salesman:
FCR: How did it all begin?
Fung: I entered the stock market in 1988 when the market started to boom. The par value of almost every stock was climbing higher and higher. I thought it was a good opportunity to make money, and a lot of small investors did become millionaires overnight. I didn't want to miss my chance. Everything seemed so sure. The general economic condition of Taiwan was so good that I thought it could support the stock market.
FCR: How much money did you invest and where did it come from?
Fung: Right at the beginning I had US$40,000. My family members pooled their money, but most of it came from my father and elder brother. It would not have been possible for me to have saved that much money from my salary.
FCR: And when you made a lot of money, what did you do?
Fung: When the market was up, I would go with my friends, also keen investors, to a fancy restaurant to celebrate our good luck. Some investors celebrated with champagne right there in the securities company. That wasn't a rare happening in the last two years when it seemed that stock prices had nowhere else to go but up.
The bullish stock market brought prosperity to other business sectors such as high-priced restaurants, elegant fashion boutiques, the travel industry, and other luxury businesses. But since the market turned unstable and then dropped, these businesses have also suffered.
FCR: Were your losses this year offset by the profits you gained in the last two years?
Fung: I have no money left. My savings, the family money, the profits—they all went back into the stock market. I have no stocks in my hand. Since early last year I've been searching for securities financing from illegal margin lending sources. But Taiwan does not have a good credit system, and that is the only way for small investors like myself to obtain funds.
FCR: What are you going to do now?
Fung: I think it would be wise to enter the stock market as a real investor, not as a speculator. Next time I'll buy bonus shares which have better guarantees of profit. I have no great plans for the future. But I am thankful for my experience in the past two years. You see, I met my wife at the securities company. We were married in June. She's a broker.
Ms. Liang, 31, married; secretary at a foreign trading company:
FCR: What got you interested in the stock market?
Liang: I went in a year and a half ago. I was influenced by my family; they were making good money. My husband and I had just bought an apartment, and I figured that short-term stock investments would be a quicker and easier way to make the mortgage payments.
FCR: How much money did you have to buy stocks the first time?
Liang: It wasn't much. Just a little over US$10,000.
FCR: Did your first batch of stocks earn you anything?
Liang: No, because shortly after I bought the stocks, the government decided to impose a transactions tax. I remember the announcement was made before the Mid-Autumn Festival in September 1988. Then the Taiex index began to fall. Quickly I sold some of my stocks. The index bounced back in November. I sold some stocks again and bought some more. Then the index dropped again the following month. I lost again. It was not until the beginning of last year when the Taiex index began to climb that I started making profits. I doubled my money. In January this year I put in more money—more than US$50,000.
That was it. Since then the index has been rapidly declining. I have about US$35,000 locked in the stock market. I borrowed that from the bank and used my house as collateral. So aside from having to pay the mortgage on my house, I am paying back the bank loan I used to buy stocks.
FCR: How much are the monthly payments you make to the bank?
Liang: When the Taiex index was up I was paying US$740 a month, and when I re-mortgaged my apartment my monthly payment went up to US$1,000. That's my whole monthly salary. My husband makes about US$750, all of which goes to our living expenses. We rented out our apartment so that we could make some money and we moved in with my mother-in-law.
FCR: What about your parents and relatives? Is their money still in the stock market?
Liang: Yes, six of them altogether — my parents, my sisters, and my sister in-law. On the average they each have US$18,000 trapped in the stock market. My sister-in-law has over US$35,000, and my unfortunate mother invested most of her savings, about US$75,000. So my case is not the worst. The only one who was lucky enough to have escaped is my little sister. She left for the U.S. before the last wave which began in February. She had made over US$10,000 and got away.