Thu, Oct 02, 2003 - Page 11 News List

Rules on foreign investors in stock market end today

END OF AN ERA For 12 years, foreign institutional investors were limited to owning US$3 billion of the country's shares. From today, they can own as much as they like


The government is throwing open the doors to overseas investors today, officially scrapping limits on how much they may invest in the nation's US$340 billion stock market and simplifying the approval process for buying shares.

The abolishment of the qualified foreign institutional investor program, known as QFII, fulfills a promise made by President Chen Shui-bian (陳水扁) three months ago to deregulate the nation's financial markets.

The government is repealing a 12-year-old rule that limited each foreign institution to US$3 billion of the nation's shares, the Securities and Futures Commission (SFC) said in a statement. Overseas investors have been net buyers of NT$441 billion (US$13 billion) of Taiwanese stocks this year, helping fuel a 25 percent rise in the TAIEX.

"The QFII system served Taiwan well, helping its stock market to evolve from embryonic to a developed equity market," said George Ho, general manager of Jardine Fleming Taiwan Investment Management Ltd.

"The system came under attack only in recent years as Taiwan became ripe to open further," he said.

The system was credited by some for helping the country escape the brunt of the Asian financial crisis because the controls allowed the government to screen out foreign speculators, who were playing havoc with other markets in the region. In the second half of 1997, the TAIEX shed about 10 percent, while Hong Kong's benchmark index fell nearly a third and the South Korean index was halved.

The deregulation may prompt Morgan Stanley Capital International Inc to raise Taiwan's weighting in its indexes, the world's most widely watched by fund managers. Taiwanese stocks currently have about 55 percent of their market value represented in the MSCI indexes because of the cap on foreign investment.

"The expected weighting upgrade by MSCI will prompt overseas investors to buy more shares in Taiwan," Ho said.

Morgan Stanley Capital International Inc estimated in August that full weighting may prompt overseas fund managers to buy about US$6 billion more of Taiwanese stocks. At the time net foreign investment was US$8.6 billion. About US$3 trillion is benchmarked to MSCI indexes globally, according to the index compiler, which is majority owned by Morgan Stanley.

In scrapping the qualified institutional investor program, Taiwan is also dismantling a cumbersome approval process foreign investors had to undergo to get accredited.

Starting today, foreign investors will need only register with the Taiwan Stock Exchange Corp to receive lifetime permission to invest in Taiwanese stocks, though the SFC said applications will undergo "necessary reviews," without elaborating.

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