Banking analysts and foreign investors yesterday welcomed the government's decision to allow investment from two hedge funds in a move that signals the opening up of the nation's capital markets.
The deregulation of hedge-fund investment was expected to be the final push for Morgan Stanley Capital International (MSCI) to hike the TAIEX's weighting in its review of the nation's liberalization progress and market transparency, they said.
"The scrapping of the ban will certainly will be a plus for Taiwan's stock markets, as overseas investors will increase their pace of investment in local stocks, bonds, futures, derivatives, or currencies," said Wu Pei-wei (
Hedge funds act very similar to mutual funds, but invest with high leverage and greater flexibility when choosing investment targets.
A mutual fund usually makes long-term investments, and thus earns relative returns for its clients -- such as retail or individual investors -- while a hedge fund creates absolute returns for sophisticated clients, including institutional investors and wealthy individual investors.
The Securities and Futures Commission, the nation's oversight body for futures and securities trading, announced an end to the ban on investment's by hedge funds on Thursday.
But Chinese investors will still be prohibited from investing in Taiwan's financial market, the commission said.
The deregulation is expected to help MSCI make the decision to increase the TAIEX's weighting by as early as May, Wu said.
MSCI has cautiously evaluated the feasibility of hiking the TAIEX's weighting after the government scrapped investment limits for qualified foreign institutional investors (QFIIs).
Last October, the government scrapped limits on how much a QFII may invest in the nation's stock market and simplified the approval process for buying shares.
The outcome of the MSCI review is crucial in encouraging foreign investors to raise investment in Taiwan's stocks, a senior foreign banker said yesterday.
"The regulators' latest move is positive for MSCI to increase its weighting on the Taiwanese index as the confusion has gone [with the deregulation]," said the banker, who requested anonymity.
But the nation's central bank may feel nervous over the deregulation as a massive inflow of foreign funds, especially from currency speculation, could destabilize the New Taiwan dollar, he added.
Commenting on the expected greater fluctuation of the local currency, Wu said it is foreseeable that the momentum for the local currency to appreciate against the US dollar will remain strong, along with the continuous inflow of overseas funds.
But it will be healthier to see the NT dollar to move in line with market forces, Wu added. He attributed Taiwan's mounting foreign reserves to the central bank's intervention.
Despite the government's step to boost the market's internationalization, investors did not react strongly to the announcement.
The TAIEX edged up 5.34 points, or 0.09 percent, to close at 6,269.71 points yesterday.
The local stock market will close for the Lunar New Year holiday next week and resume trading on Jan. 27.
"Investors have already factored in the expectation of MSCI increasing the TAIEX's weighting," said Kevin Chung (鐘國忠), a deputy manager at Jih Sun Securities Investment Consulting Co (日盛投顧).
RSS