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TAIEX prepares for influx of investment from China

The Taiwan Stock Exchange is preparing for an influx of Chinese investment to boost the value of the TAIEX index, which has underperformed its Asian benchmark for four of the past five years.

Taiwan and China bar Chinese investors from buying Taiwanese stocks. But Taiwan Stock Exchange chairman Wu Rong-i (吳榮義) said the presidential elections should pave the way for an agreement with Beijing to ease restrictions.

"Taiwan will eventually have to open up to China in order to stay competitive and be globalized," said Wu in an interview yesterday. "Both sides are set to become more liberalized and that trend cannot be reversed."

Taiwan's governing party and opposition candidates have both pledged to allow Chinese investors to buy Taiwanese stocks, and the exchange is considering implementing measures that would allow Chinese investors to fulfill their roles as shareholders in Taiwanese companies, such as permitting proxy voting by e-mail, Wu said.

"We are heading toward a more open China policy, so on the exchange level we will iron out details and be ready," Wu said.

Wu, who was deputy to Democratic Progressive Party (DPP) presidential candidate Frank Hsieh (謝長廷) when he was premier in 2005, also suggests government regulators on both sides should reach agreement on investor protection and information sharing.

"Opening Taiwan to Chinese investors will allow the nation to benefit from China's booming economy and rising appetite for stocks," said Albert King, who manages US$10 million as chief investment officer at Prophet Capital Inc in Taipei. "Taiwan shouldn't isolate itself from the growing economic power."

Taiwan's stocks may rise to a record after the presidential election on improved ties with China and an end to political gridlock, BNP Paribas SA said on Nov. 13. The TAIEX should surpass its peak of 12,682 reached in February 1990 "regardless of which party wins," Johnny Chen (陳力健), head of research at BNP Paribas Securities (Taiwan) Co, wrote this week.

China on Aug. 20 said it will start a pilot program to let some of its 1.3 billion citizens buy Hong Kong stocks. Chinese funds with at least 200 million yuan (US$27 million) may qualify to invest in markets that have signed a memorandum of understanding with China -- including the US, Hong Kong, Japan and Germany.

Hong Kong's Hang Seng Index jumped 33 percent from then until yesterday compared with a 4.6 percent gain at its Taiwanese counterpart.

The TAIEX has underperformed the Morgan Stanley Capital International Asia-Pacific Index for four of the previous five years. The regional measure has surged 128 percent since 2002, more than twice the gain of Taiwan's index.

The boom has lured companies including Uni-President Enterprises Corp (統一企業), the nation's largest food maker, and Hon Hai Precision Industry Co (鴻海精密), Taiwan's biggest electronics exporter, to list their units in Hong Kong rather than at home.

Better market conditions have attracted 57 Taiwanese companies to seek listings in Hong Kong over the past three years, Wu said.

"Hong Kong may appear to have offered a good listing ground for Taiwanese companies, but I always encourage them to come home," Wu said.

Foxconn International Holdings Ltd (富士康), the mobile phone handset-making unit of Hon Hai, has surged 380 percent since its February 2005 listing in Hong Kong. The stock doubled its value last year and was the fifth-best performer in the city that year.

Uni-President said last month that it was still in talks with regulators to sell shares in Hong Kong after "considering" the listing for two years.

Higher returns also encouraged Taiwanese investors to drain the nation's funds. Capital outflows from Taiwan in the past 15 years are estimated at between US$500 billion and US$800 billion, according to BNP.

China is the biggest investment destination.
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