Cabinet lifts restrictions on investments

The Cabinet yesterday lifted a ban on onshore funds and discretionary accounts managed by domestic securities investment trust companies investing in the Chinese stock market, as well as in red-chip shares and H shares in the Hong Kong stock market.

A discretionary account is a securities account where clients give specific authorization to a partner, director or qualified portfolio manager to make decisions, select securities and execute trades for him/her without consultation on each transaction.

Onshore and discretionary accounts will now be allowed to invest up to 0.4 percent of their net assets in the Chinese stock market. The cap on investment in the Hong Kong stock market will be 10 percent.

Wu Tang-chieh (吳當傑), director-general of the Securities and Futures Bureau under the Financial Supervisory Commission, made the announcement at a press conference after the Cabinet's weekly meeting.

He said the policy would take effect when the Measures Governing Investment and Transfer of Technology in China (在大陸地區從事投資或技術許可辦法) have been amended. He didn't give a specific timetable.

"The ceilings are set at the same level of those for offshore funds to enable local investment trust companies to compete with their foreign counterparts on an equal footing," Wu said.

As of the end of last month, onshore funds totaled NT$2.21 trillion (US$67.62 billion), while discretionary accounts amounted to NT$ 710 billion (US$22.95 billion), Wu said.

Since May 27, 2004, the government has permitted offshore mutual funds to raise money in Taiwan for investments in stock markets in foreign countries including China, with a cap of 0.4 percent of their net assets.

At that time, the cap for investments in red chips and H shares in the Hong Kong stock market was set at 5 percent of net assets, The cap was adjusted to 10 percent of net assets on Jan. 31, 2005.

Total of offshore funds reached NT$1.87 trillion as of last month, government data shows.

"Given that there are more risks in emerging markets such as those in China and Hong Kong, the new dispensation is expected to help local investment trust companies develop their risk management capabilities," Wu said.

The measures will be applied to the stock market in Macau once it is established.

The local securities investment trust industry welcomed the news, saying that it would allow more flexibility for companies to develop new products as emerging markets, including that in China, have been targeted by investors.

"We have been working on this since 2001 ... We feel excited and encouraged by the Cabinet's decision," said Francis Tu (杜純琛), chairman of the Securities Investment Trust & Consulting Association of the ROC (投信投顧公會).

The new dispensation will increase the attractiveness of onshore funds and help to achieve the government's goal of making Taiwan a regional fund-raising and asset management hub, he said.

The association said the relaxation was unlikely to have a negative affect on the local stock market.

"The impact, if there is any, will be limited," said Vicki Hsiao (蕭碧燕), secretary-general of the association. "The advantages outweigh the disadvantages."

Hsiao investors would no longer need to open accounts or buy offshore funds in Hong Kong or Singapore to invest in Chinese stocks. This would create new business for local securities investment trust firms and offer additional protection to local investors in terms of access to market information, she said.

The association, however, said the new dispensation was still "a certain distance from a real internalization and liberalization."