A SARS-battered China this week sent a clear signal to investors that it plans to push ahead with financial liberalization after granting approval to two foreign brokerages to trade securities in its domestic markets.
The landmark announcement gives Swiss banking giant UBS and Japan's leading brokerage Nomura Securities first dibs on China's US$500 billion markets, effectively Asia's second largest after Hong Kong.
Perhaps more importantly, analysts said, it sets the stage for further reform of China's Byzantine markets, indicating Beijing's willingness to continue opening up its financial markets.
"The signal is very clear. China is assuring the world it will not slow the pace of reform and liberalization," Salomon Smith Barney economist Huang Yiping said.
While investors and analysts applauded the deal as confirmation of a reform-minded Beijing, another scheme to allow mainland Chinese investors to trade overseas shares returned to the fore, helping boost Hong Kong's embattled equities market.
This plan, commonly referred to as QDII or the "qualified domestic institutional investor" program, was put forth by the Hong Kong government in 2001 as part of its bid to give the former British colony's flagging economy a shot in the arm of China's huge foreign currency reserves.
Such a move would also mark a significant liberalization of the central government's forex regime.
With private forex savings of over US$90 billion, Hong Kong authorities are banking on the Chinese investor eager to invest cash other than in China's rickety markets or domestic banks.
"The launch of QDII will be helpful in making good use of Chinese huge savings, which are largely parked in banks with low interests," said Eddie Yin, a professor at the China Academy of Social Sciences.
To date, authorities denied reports they would soon allow domestic investors the chance to invest overseas, but a first draft to create pool funds worth US$2 to US$5 billion dollars managed by qualified domestic asset managers is already under review, sources said.
The program must now gain clearance from the China Securities Regulatory Commission, China's central bank and the National Foreign Exchange Administration Bureau.
While the final go ahead will probably not see the full light of day until next year, it would mark China's first tentative steps to full convertibility of its capital account, said Chen Xingdong, a China economist at BNP Paribas Peregrine.
But consolidation of money and forex markets with central bank coordination are imperative before the sluice gates open that would set the yuan free on international forex markets.
QDII, like most of China's economic reforms which have gradually moved its state-controlled economy to a market-oriented one, will be a carefully controlled experiment, highlighting Beijing's cautious attitude toward change.
"It's not the ripe time for the launch of QDII in the near future, given the relatively poor regulatory supervision of the domestic capital markets," said Wang Songqi, vice director of the China Academy of Social Sciences.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading