The nation’s plans to attract reputable China-registered companies to list on the local bourse may not bear fruit in the near term because updating auditing and supervisory issues will be time-consuming and challenging, Morgan Stanley said a recent report.
Taiwan and China agreed last month to loosen regulations on mutual investments in the securities business, including the creation of “T-shares” — primary listings by China-registered companies as part of the government’s efforts to invigorate the capital market.
The two sides are planning to hold further talks this year to work out a supervisory mechanism, the Financial Supervisory Commission’s Securities and Futures Bureau Director-General Huang Tien-mu (黃天牧) told reporters following an unprecedented meeting with China Securities Regulatory Commission Director-General Tong Daochi (童道馳) in Taipei on Jan. 29.
“It will be difficult to attract China-registered companies for T-share listings in the near term,” as the TAIEX has less liquidity than China’s A-share market and domestic investors in China know the companies better, Morgan Stanley said.
Taiwan does not allow China-registered companies a primary or secondary listing even though foreign companies in which Chinese nationals control stakes of more than 30 percent can issue depositary receipts in Taiwan.
The Cabinet broached the concept of “T-shares” at the end of last year with a view to reversing sluggish trade.
The government may want to attract reputable companies from China to raise the profile of “T-shares” and the local capital market, but whether China will allow such companies a primary listing in Taiwan remains to be seen, Morgan Stanley said.
“Given the unique political settings across the Taiwan Strait, fixing problems with auditing and supervision may be time-consuming and challenging,” the brokerage added.
However, China-registered companies could find the Taiwanese market more open to foreign institutional investors and could enjoy higher price-to-equities ratios on the local bourse, Morgan Stanley said.
The execution and targets for “T-shares” will be critical in bringing positive sentiment to the local capital market, but the scope has yet to be set, the brokerage said.
The government has agreed to raise the amount that Chinese institutional investors are allowed to invest in the local bourse from US$500 million to US$1 billion and is considering extending access to individual Chinese investors.
In addition, it has made promises to ease regulations in order to allow Chinese securities and futures houses to own stakes in their Taiwanese peer companies.
Banking authorities from both sides of the Taiwan Strait are expected to meet next month to discuss opening bilateral markets further.