These are unsettling times for Taiwan's financial market regulators. Full liberalization of capital controls is supposed to be completed by the end of the year, presidential candidates are talking about letting in Chinese investment, the Internet is rapidly becoming a day-trader's dream come true and Morgan Stanley Capital International (MSCI) is re-weighting Taiwan in its emerging markets index, thereby attracting a huge inflow of international funds into Taiwan. All in all, Taiwan's financial markets are being opened to unpredictable forces that, if left to run amok, could have a harmful effect on the economy. For a nation bereft of support from international organizations such as the IMF -- and with China seeking capitulation to its demands for "reunification" by any means necessary -- this is worrying. Yet while this newspaper empathizes with these officials, it cannot condone their recent attempts at intimidating foreign investors.
On Thursday, the Securities and Futures Commission admonished the island's most influential foreign investment analyst, Peter Kurz of Merrill Lynch, over actually rather positive comments he made recently to local media. Is the SFC really so concerned about foreign brokers influencing the market for their own ends through well-placed media comments -- which are sucked up by the retail investors that still make up the vast majority of daily turnover -- or is it more concerned with foreign brokers' growing share of the market in this particular sector?
After all, why should the authorities be worried about someone talking up the market, when the vice president's wife, Lien Fang yu (
The SFC says it has no problem with analysts writing whatever they want for select clients. Yet such a claim is undermined by similar pressure tactics the SFC tried on Kurz and others last year when the market was still in freefall and the brokers were writing less than glowing reports for clients that were released in Hong Kong. It is also made silly by the existence of cable TV channels in Taiwan that specialize in pushing certain stocks on retail investors in the middle of speculative frenzies.
The only logical answer is that the KMT fears the impact of competition. This much is made clear by the fact that foreign institutional investors have been a growing force in the local market over the past two years. Partly, this is because of Taiwan's growing importance in international indexes such as MSCI's. But it is also because foreign brokers -- Kurz being but the best-known among them -- have gained a reputation for calling the market the way it is. For many retail investors, foreigners have become a dependable indicator of current conditions and future trends.
The Central Bank has done little better in accommodating the entry of foreigners onto the local playing field. Well-known for its outbursts against "speculators" in the NT dollar, the bank came out again on Friday to say it would screen applications by foreign institutions wanting to remit funds into Taiwan, just to make sure the funds were not going to be used for "speculative investment purposes or attacks." Quite how one would measure such a thing is inexplicable, which is why the Central Bank has never been able to specify its yardstick for what constitutes the "short" or "long" term in Taiwan's stockmarket.
The fact is that Taiwan's financial market regulators need to be brought into the 21st century by having their feet held to the fire by international investors. SFC and Central Bank officials must be forced to believe in what they say about Taiwan's healthy economic fundamentals, and the best way to achieve this is not to restrict the activities of foreign investors but to open the market to them still further.
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