Taiwan's investors yesterday rushed to buy high-tech shares in anticipation of an influx of foreign funds following recently announced measures increasing the size and scope of investment by foreigners. Francis Koo, chief investment officer at ING CHB Securities Investment & Trust Co, was quoted by Bloomberg news agency as saying Monday's rally was fuelled by Friday's announcement to include Internet companies.
"Local institutions are buying as they want to pre-empt the offshore funds after the government increased the foreign fund limit," he said.
Electronics stocks pulled the benchmark TAIEX up 1.9 percent to 8052.31, closing above 8,000 for the first time since September. High-tech shares accounted for 36 percent of all gains in the index.
Koo added that his company, which manages NT$7 billion in Taiwan equities, was expecting the market index would go into five figures by next year: "I'm expecting 20-30 percent returns over the next 12 months. The 10,000 level is an easy target over the next six to twelve months."
The recent announcement of the doubling of the maximum limit on foreign investment to US$1.2 billion and plans to create a new share type to facilitate high-tech companies entering the over-the-counter market came shortly after Morgan Stanley Capital International (MSCI) said it would increase the weighting of Taiwanese shares in its international index.
Responding to reports in Taiwan's financial newspapers that pressure from Morgan Stanley Capital International had brought about the decision to double the limit on foreign investments, an executive of the Hong Kong based securities firm said MSCI would soon announce how and when its weighting would be fixed. The executive declined to comment on reports of recent visits by top-level MSCI executives to petition Taiwan's central bank.
A foreign securities analyst said the government was forced to raise the investment ceiling as a precondition to joining the WTO: "It was a necessary adjustment, regardless of the MSCI index change. The Taiwanese government would have inevitably have had to increase the limit as this is one of the major issues that European and American investors have been insisting on."
Government predictions of an increase in foreign stock investments of US$10 billion to US$15 billion next year following the MSCI index change may prove realistic, the analyst said.
"However the major obstacle to foreign investment in Taiwan is not the upper limit, its the bureaucratic obstacles and paperwork," he added.
The other major factor inducing foreign funds to invest in Taiwan's market is the recent announcement of the creation of a new type of share, called the "second share type", which will allow over a thousand high-tech companies access to the OTC market, a Securities and Futures Commission official said.
"The plan is to allow up to 2,000 mostly high-tech companies to list on the OTC market without having to prove they've made a profit over recent years," the official said.
The plan will give investors access to these shares through a safe and regulated market and so will safeguard investors who have previously been buying shares on the open market, she said, adding: "It opens up a large range of Taiwan's high-tech stocks to foreigners in a safe market and is a necessary step to creating Taiwan's own NASDAQ high-tech stocks market."
At present foreign funds account for only 5.6 percent of Taiwan's stock market capitalization although foreign share holdings passed US$20 billion last Wednesday.
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