For the second time in less than 18 months, Taiwan made it easier for foreigners to buy shares in Asia's third-biggest stock market. And just like last time, investors are unimpressed.
The reason: Record unemployment and slow demand for computer chips bode ill for the benchmark TAIEX. It fell 44 percent in US dollar terms in the past year even as the government waded in by telling state funds to buy more shares.
"The relaxation of the rules appears to be designed to attract investor interest in the short term," said John Watson, who helps manage US$11 billion in Asia, outside Japan, at Invesco Asia Ltd. "But a lot of the super funds just give up because of all the paperwork involved." In the latest change, the government said on Thursday that foreign funds need now be no larger than US$200 million to qualify for the status that allows them to buy Taiwan shares. It also said funds in existence for as little as a year may be allowed to seek "qualified foreign institutional investor" status.
It was the government's first major overture to foreigners since it doubled the size of overseas investment in a single company to NT$1.2 billion (US$36 million) in November 1999.
Yet rules for foreign funds remain complex -- and the approval process is opaque. Funds still require the approval of the central bank, for example. The bottlenecks, investors say, need a lot more clearing.
"I have accounts that have been pursuing qualified foreign institutional investor status in Taiwan for years without any finalization in sight," Watson said.
At the end of April, qualified foreign investors owned US$26.4 billion of Taiwan shares -- 12.5 percent of the market, according to the Taiwan Stock Exchange.
In the meantime, there are some reasons to avoid Taiwan stocks. United Microelectronics Corp (
"The most important thing to investors is fundamentals," said Cheng Yi-sheng, who helps manage NT$1.5 billion in investments at Taiwan Securities Ltd (台証證券). "The more sound the fundamentals, the more money will come in."
Judging by the market's reaction since the new rules were announced, few investors are making a bet on recovery anytime soon. The TAIEX fell as much as 1.7 percent on Friday before rebounding to close 2.2 percent higher -- a performance that local newspapers said reflected the purchase of NT$2 billion of shares by state-owned funds.
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