`Red chips' leave local investors behind

Hong Kong-listed shares of Chinese companies are continuing to attract a lot of interest, but Taiwanese investors can still only get a piece of the action illegally.

Many local brokers trade so-called "red chip" stocks via brokers in a third country, a market participant said yesterday.

"There are only 27 red-chip stocks listed on Hong Kong's bourse, but local investors are interested in these China-related shares as the Chinese economy is expected to keep booming," said Dave Chou (周顯黎), an assistant manager at Yuanta Core Pacific Capital Management (元大京華投顧).

The Chinese companies' stocks, including Legend Group Ltd (聯想集團) and China Unicom Ltd (中國聯通), account for about 24 percent of the turnover on Hong Kong's Hang Seng Index, Chou said. Share prices of these companies have been rising steadily since they were listed in 1997, he added.

The latest entrant is Shanghai-based Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路), the world's fourth largest chip foundry, which will start trading in Hong Kong today. SMIC has been warmly welcomed by Hong Kong investors and raised HK$14 billion from its Hong Kong initial public offering earlier this month.

SMIC made its debut in New York yesterday.

"These rocketing stocks will gradually interest local investors ... I believe sooner or later, the government will consider lifting a ban on the sector," Chou said.

Chou made the remark in response to a Chinese-language newspaper report yesterday, which said the government was considering lifting a ban on investment trusts and brokers from buying red-chip stocks.

The report, without saying where it got the information, said the government may allow local investment trusts and brokers to recommend, or trade, red-chip stocks and overseas funds containing red chips.

A government official yesterday flatly denied the report.

"We have no plan to lift the ban so far because of political considerations, even though many fund and trust companies have been pressing for this for years," Wu Tang-chieh (吳當傑), chairman of the Securities and Futures Commission, told the Taipei Times yesterday.

Apart from calling on the government to open up its policy on trading red chips, Taiwanese investors have also been asking the government to allow China-based Taiwanese businesses to list on the TAIEX.

But the government has been reluctant for fear of capital flight to China.