Chen scraps foreign investment cap

President Chen Shui-bian (陳水扁) announced yesterday that the government will scrap a US$3 billion cap on a single qualified foreign institutional investor (QFII) in the nation's stock market, sending the TAIEX to its highest close since July 15, last year.

Speaking at a financial reform seminar sponsored by the Taiwan Thinktank (台灣智庫), Chen said the government also plans to abolish the QFII mechanism shortly, while simplifying application procedures for foreign investors.

In addition the government will remove restrictions requiring QFII's to remit money into Taiwan within two years of their stock investment application approval, Chen said. An official at the Securities and Futures Commission said the changes are expected to take place within days.

QFIIs include foreign banks, insurance companies, fund management institutions, securities firms and funds operated by foreign governments.

"The government is determined to speed up economic liberalization. Hopefully Taiwan will become more accessible to international investment and the local market will be able to go forward at the same pace as its foreign counterparts," Chen said.

In response to Chen's remarks, the TAIEX surged 170.41, or 3.3 percent, to close at 5,322.26 on optimism overseas investors will buy more local shares. Risers led decliners 473 to 180, with 89 stocks unchanged. Turnover was NT$170.47 billion (US$4.96 billion).

Analysts said Chen may be trying to stir up a stock rally ahead of the presidential election next March and may be aiming to strengthen Taiwan's position against China, which is opening its yuan-denominated market to foreign funds for the first time this month.

"President Chen understands that a bullish stock market is good for the investors' pockets," said Phil Chen (陳憲志), a fund manager at the Grand Cathay Securities Investment Trust Co (大華投信).

"A deeper pocket will boost consumer spending and the economy, which will help Chen in his re-election bid," he said.

Overseas institutions had a combined US$47.7 billion invested in Taiwan shares as of June 20, according to the Securities and Futures Commission, under the Ministry of Finance. Foreign funds account for about 10 percent of Taiwan's market capitalization.

"Foreign investors were the major supporter of Taiwan stocks when concerns of the Iraq war and SARS scared local investors into dumping shares earlier this year," said Jerry Chen (陳乃漢), research head at First Global Investment Trust Co (元大投信). "They are the winners this year."

Foreign funds will still have to seek approval from Taiwan's central bank and declare the amount they intend to invest. Meanwhile, Chinese capital, which is inextricably linked with cross-strait policies, and international hedge funds, which may impact Taiwan's foreign exchange market operations, will still be barred from entering the country, Wu Tang-chieh (吳當傑), vice chairman of Securities and Futures Commission, said yesterday.

Vice Minister of Finance Susan Chang (張秀蓮) said the government's plan to ease restrictions on foreigners who invest in local stocks will help attract foreign capital in the long run.