The nation’s main stock exchange will seek to improve the local capital market by collaborating with its Asian counterparts, a Taiwan Stock Exchange (TWSE, 台灣證券交易所) executive said yesterday.
“Taiwan’s annual capital outflow is estimated at about NT$2 trillion [US$63 billion] annually,” TWSE president Michael Lin (林火燈) said at a press conference after the Asian Exchange Forum in Taipei.
Representatives from 10 Asian countries’ stock exchanges — including Japan, South Korea, China, Vietnam, Indonesia and Singapore — attended the forum, which was organized by the TWSE.
Through closer ties with other stock exchanges, about half of the capital outflow may be funneled through the TWSE to boost local trading volume, Lin said.
This could stimulate local brokering, depositary and clearing businesses, while providing investors with more options in which their interests are safeguarded by regulators, he said.
Lin said that representatives from neighboring stock exchanges all expressed an interest in furthering ties and collaborations with each other, and hope to introduce new products and stock exchange links.
Impressed by Taiwan’s many small and medium-sized technology companies, and their ability to pay out relatively high dividends, Japan and South Korea expressed an interest in possible collaboration opportunities, he said.
In particular, South Korean representatives brought up the possibility of devising a new stock index with Taiwan to tap into the trading potential of the nation’s technology companies, Lin said.
However, he said that a stock market link between the TWSE and the Korea Stock Exchange, and cross-listing of exchange-traded-funds (ETFs) on the two exchanges are not being considered at the moment.
He added that establishing stock exchange links and ETF cross-listings are not easy, as they have to deal with more technical and regulatory issues, in addition to finding market-makers and determining the types of products that will appeal to investors on other exchanges.
Although the Hong Kong-Shanghai stock market link has been operating for six months, preliminary work that went into its establishment took two years, Lin said.
Asked by reporters about his views on the capital gains tax on securities transaction, Lin said the issue did have an effect on the local stock market after first causing a market panic in 1988.
“Taiwanese investors panicked because they were not able to easily verify if the amount of capital gains tax they ought to pay was correct, as the local trading mechanism made it very difficult to calculate one’s gains and losses from trading, and this type of deep uncertainty proved to be catastrophic,” Lin said.
“The goal of the TWSE and the Financial Supervisory Commission is to aid the government in maximizing tax revenues under a system that is feasible and conducive to the nation’s capital market development,” Lin said.
“The equity market is an important facet of a nation’s economic growth, as direct financing is much more efficient than going through the banking system,” he said.
On Thursday, the commission released the results of the Securities and Futures Institute’s survey of major market players, brokerage firms and retail investors.
It showed that heavy tax burdens, difficulty turning a profit and plans to reallocate funds overseas were the top three reasons affecting many major market players’ interest in the local stock market.
As for retail investors, volatility in international markets, increasing misgivings caused by the TAIEX’s continued rise and excessive tax burdens on trading were the main holding them back from the market, the survey showed.
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