Print

Mail

wiki links

Editorial: Investors should be left alone

Recently the government has been interested in protecting domestic investors from possible losses when buying overseas mutual funds. A central bank official warned earlier this month that investors should not rush to buy overseas mutual funds for higher yields without considering the potential damage to the NT dollar.

The Securities and Futures Bureau also expressed concern over securities investment trust firms' intensified publicity drive to promote overseas mutual funds while not also mentioning the possible risks.

The government is actually cautious about the capital outflows after Taiwanese started using NT dollars to buy higher-yielding assets overseas.

The government's concern was justified by the latest central bank statistics released last week. The statistics indicate that the financial account of the nation's balance of payments recorded a net outflow of US$10.972 billion in the first quarter of this year, the seventh quarterly net outflow in a row, and a widening net outflow of US$3.551 billion a year earlier.

What is noteworthy in c -- which documents international monetary flows related to investments in business, real estate, bonds and stocks -- is that investments abroad by Taiwanese residents had a net outflow of US$11.175 billion in the first quarter, which was the second highest figure after the second quarter of 2003 when a net outflow of US$12.46 billion was posted.

This outflow, according to the central bank's explanation, was mainly attributable to a sharp increase in investment in foreign mutual funds and a higher ratio of investments abroad by local insurance companies pursuing higher returns.

In light of the increasing appetite for foreign investments, due to a greater potential return, reports carried by local media last week suggested that the central bank may strengthen its review process of the funds to deter outflows of domestic capital.

The Securities and Futures Bureau was also said to have demanded that securities trust firms stop promoting foreign mutual funds as some of them are over-subscribed while many others are waiting for the regulator's approval to start business.

Both the central bank and the bureau denied the rumors, of course, especially as it involves capital controls which are a sensitive issue to any government in the world.

Should the government be concerned about the nation's of capital outflows? And if the answer is yes, how can the government act to protect domestic capital markets while causing as little damage as possible to the economy in the long term?

The government's concern of outflows is highliting the fact that Taiwan has the second-lowest interest rate in Asia after Japan, while the local currency has been the second-worst performer among the 17 most-actively traded global currencies.

For over a week the central bank has been selling US dollars actively on the foreign exchange market to help limit the NT dollar's continued fall. This effort only provides a short-term remedy not a long-term cure.

Supporting a depreciation in the local currency may help achieve this goal, but any administrative action to dissuade people from investing overseas could severely damage Taiwan's competitiveness in the global financial services market.

The government needs to understand that controlling capital outflows involves not just regulating market trends but also structural changes in the economy such as deregulation and improved government efficiency.

The government should not let these problems interfere with people's investment options. People are entitled to a better return on their investments especially when prices are rising but wages are not.
This story has been viewed 1101 times.