Thu, Dec 30, 1999 page17

• Net foreign inflows into local equities skyrocket

  STOCK INVESTING Foreign money flowing into local companies grew from just a trickle of NT$24.74 billion in 1998 to roughly NT$333.45 billion this year

  • By Stanley Chou / STAFF REPORTER
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  Net purchases of Taiwan stocks by foreign investors this year were more than 12 times 1998 levels, and analysts say the money will continue to pour in over the next 18 months.

  In addition, the analysts say, as the amount of investment by foreigners continues to grow, so too does their influence on the stock market.

  According to the Taiwan Stock Exchange, total net investment by foreign investors was NT$333.45 billion (US$10.5 billion) this year, up from just NT$24.74 billion (US$0.78 billion) a year ago.

  Analysts said the major reason for the increase was a decision by Morgan Stanley Capital International (MSCI) to increase the weighting of Taiwan stocks in its global indexes.

  The decision came regardless of political uncertainty surrounding President Lee Teng-hui's (李登輝) articulation of Taiwan's relationship with China as "state-to-state" in nature and worries about the impact of the 921 earthquake.

  "After MSCI decided to increase the weighting of the Taiwan stock market from 50 percent to 100 percent in its indexes ... a lot of offshore fund managers have been under pressure to increase Taiwan stocks in their portfolios," said Francis Yu (於貽勳), general manager of Warburg Dillon Read in Taiwan.

  Even after the huge increase in investment by foreign investors, Yu expects the money to keep flowing in.

  "There should be another US$15 billion to US$20 billion (NT$472.5 billion to NT$630 billion) coming into the Taiwan stock market in the next 18 months," Yu said.

  The local branch of Warburg Dillon Read has been one of the major securities firms handling orders for Taiwan stocks for foreigner investors.

  After the Asian financial crisis unfolded in 1997, foreign fund managers dumped most of their Asian stocks.

  But Taiwan was hardly struck by the crisis, thus providing reason for the managers to regain their confidence in Taiwan stocks and rebuild their positions, analysts said.

  "Another reason why foreign fund managers have been quite optimistic is the future prospects of the electronics industry," Yu said. "Highly competitive Taiwan electronics companies are becoming the core of their portfolios."

  Another major factor is the friendlier investment environ-ment.

  "The ceiling for foreigners who invest in the Taiwan stock market will be lifted from 30 percent to 50 percent, and many other restrictions are expected to be removed in the near future," said Ker Naiven (柯乃文), assistant vice president of Taiwan International Securities (金鼎證券).

  "Steps to liberalize the Taiwan stock market have been another vital factor attracting foreign investors."

  One result of increased buying by foreign institutions, Ker said, is their increased clout in the market and ability to influence price movements.

  "If foreign investors further increase their investment in Taiwan stocks next year, their influence on the stock market will be increased accordingly," Ker said.

  "Foreign investors will not step aside when the stock market moves upward or downward as in previous years.

  "What could happen is that these foreign fund managers will change their positions in Taiwan stocks immediately when the local market moves, and it could further enlarge their influence on Taiwan stocks in the years to come."
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