The government’s plan to open up the local stock and futures markets to Chinese investors is unlikely to attract any capital inflows from China in the foreseeable future, although it marks an important step in Taiwan’s goal to build the country into an Asia-Pacific fund-raising hub, analysts said yesterday.
“Why would they buy Taiwanese shares when their own equities are priced so low with greater potential for future gains on the back of China’s growth?” said a stock broker, who requested anonymity.
He said that some of the managers of Chinese institutional funds who hail from Taiwan have long been unimpressed by the performance of local equities and are unlikely to invest in Taiwanese stocks.
“The plan is only of symbolic importance,” he said.
Only if Morgan Stanley Capital International Inc (MSCI) increases its weighting on the local market would the TAIEX attract more foreign capital inflow, including from China, the broker said, urging the government to accelerate its deregulatory policies to liberalize the nation’s capital markets.
Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), said that local equity markets would have to be attractive enough to outperform their Asian peers and attract Chinese investment.
“In the foreseeable future, local shares, including high-tech equities, will continue their downtrend, which won’t be appealing to overseas investors, including the Chinese,” Liang said by telephone yesterday.
Whether Chinese capital will actually be interested in Taiwanese shares also depends on how well China’s economy weathers the worldwide economic downturn, he said.
If China’s economy manages to cushion the global downfall, Chinese investors may take courage and seek investments overseas, he said.
Despite his misgivings, Liang threw his support behind the government’s opening, which he said should help normalize the nation’s capital ties with China.
By lifting the ban on capital inflows from China, the move is at least an attempt to correct the nation’s massive one-way China-bound capital flight, he said.
On Thursday, the Financial Supervisory Commission announced plans to allow China’s Qualified Domestic Institutional Investors (QDII) to invest in Taiwanese stocks, hoping to attract a maximum of NT$7.2 billion (US$214.56 billion) in capital.
The opening shows the government’s resolve in adopting a non-discriminatory approach toward capital inflows, which will pave the way for the nation to become a regional financial hub, the commission said.
William Lin (林蒼祥), a finance professor at Tamkang University, supported the move.
“It is a must-do policy and we should extend our welcome [to Chinese capital],” Lin said, adding that “if the money helps revitalize the nation’s capital markets, why not?”
He agreed with the commission’s decision to impose initial restrictions on Chinese capital inflows as supporting measures to “prevent the inflow of Chinese hot money from disturbing the local markets’ stability.”
Under the government’s plans, Chinese investors will not be allowed to acquire more than a 10 percent stake in a listed Taiwanese firm without obtaining permission from government agencies, the commission said on Thursday.
Chinese investors are also not allowed to gain management control of Taiwanese companies or become board members. Moreover, they cannot invest in over-the-counter derivatives or equities on the Emerging Stock Market (興櫃市場), or trade stocks on credit, the commission said.
Lin said the government’s opening policy should be made in two steps, which would give both governments time to reinforce their regulatory cooperation before a complete opening is facilitated.
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