CHINESE PORTFOLIO INVESTMENT
TAIPEI 00000577 001.2 OF 002
Summary
-------
1. (SBU) Taiwan opened its securities markets to Chinese
institutional investors in early May, but the Taiwan Stock
Exchange (TSE) is not expecting a large influx of portfolio
investment from China anytime soon. Senior TSE executives
tell AIT that the biggest impact of loosening Taiwan
restrictions on investment from China is a boost to local and
foreign investor sentiment. Over the next few years, the
TSE,s growth strategy focuses on launching a number of
exchange traded funds (ETFs) to attract local investors who
wish to play overseas markets and employ more complex
investment strategies. End Summary.
Taiwan to Allow Portfolio Investment from China
--------------------------------------------- --
2. (U) Taiwan,s stock market is up 40% so far this year
and has risen more than 13% since the conclusion of the most
recent cross-Strait talks on April 26. One heralded outcome
of these talks was the announcement by Taiwan that it would,
for the first time, permit direct and portfolio investment by
Chinese investors in Taiwan. Shortly after the talks,
Taiwan,s Securities and Futures Bureau published new rules
that allow some Chinese investors to invest in Taiwan
securities.
3. (U) The regulations remove a blanket prohibition on
Chinese investors in Taiwan securities markets, but even
under the new rules, Chinese portfolio investment activity is
strictly limited. Only four categories of Chinese investors
are allowed:
--Chinese qualified domestic institutional investors (QDIIs),
--Chinese employees of a Taiwan firm (and they are only
allowed to hold stock in their employer firm granted to them
by their employer),
--Chinese holding equity in foreign firms listed in Taiwan,
and
--any others designated by the SFB (none designated yet).
4. (U) Taiwan still does not allow individual Chinese
investors, except for the limited exceptions above, to
participate in Taiwan markets. The QDIIs also still face
significant restrictions on their Taiwan portfolio
investment. The new regulations limit the amount of funds
invested in Taiwan to 3% of their total assets. This limit
will be raised to 10% after China and Taiwan sign an MOU on
financial sector regulation and supervision. China has yet
to approve QDIIs investing in Taiwan, also pending signature
of an MOU.
5. (U) Taiwan,s regulations were crafted to guarantee that
Chinese investors do not gain control of the entities in
which they are investing. Chinese investors in aggregate are
limited to a 10% stake in any listed company, unless approval
is granted by Taiwan,s Investment Commission. Rules also
state that Chinese investors will not be permitted to gain
"control" or "management" authority over any listed company.
A Chinese investor is not permitted to be elected to the
board of directors. Although Taiwan will allow Chinese
investors to buy and sell equity shares, global depository
receipts, mutual funds, government and corporate bonds,
warrants and other securities, they are not permitted to
engage in margin trading, short sales, lending or providing
loan guarantees.
TSE Not Counting on Chinese Investors
-------------------------------------
6. (SBU) Two senior executives at the TSE told AIT they did
not believe Taiwan equity markets would see an influx of
Chinese investment anytime soon. They pointed out that
individual investors are still barred from investing in the
markets here and noted the restrictions on QDII investments.
They also argued that PRC regulators were more cautious than
their Taiwan counterparts and would likely prevent Chinese
investors from putting "too much money" into the Taiwan
market. The real impact of Taiwan,s opening to Chinese
TAIPEI 00000577 002.2 OF 002
investment, they said, would be the improvement of overall
sentiment which should help generate interest by local and
other foreign investors in the Taiwan market.
7. (SBU) With this analysis, the TSE was not focusing on
attracting Chinese investors, but instead on trying to
attract more Taiwan and foreign (non-Mainland) money by
trying to list a broad range of exchange traded funds (ETFs)
on the TSE. Over the next few months the TSE will seek
regulator approval and agreements with a number of foreign
exchanges to list ETFs representing a variety of foreign
stock indexes, including indexes in China and Hong Kong.
They also hope to offer ETF derivative products which would
allow local investors to place long and short bets on the
market or a particular sector or basket of stocks. The TSE
currently lists 11 ETFs and hopes to have a total of 30 ETFs
trading by the end of the year and as many as 100 within
three years. The executives note that unlike Hong Kong and
some other exchanges in the region, most trading in Taiwan is
driven by local retail investors, and ETFs are most suited to
individual investors.
8. (SBU) Comment: Although these restrictions on Chinese
investors currently in place will likely be further loosened
over time, our TSE contacts still do not believe that
material amounts of portfolio investment from China will
enter Taiwan anytime soon. Their attitude reminds us that
the hype may be ahead of the reality on the ground. End
Comment
YOUNG
Content
Raw content
UNCLAS SECTION 01 OF 02 TAIPEI 000577
SENSITIVE
SIPDIS
STATE FOR EAP/TC
E.O. 12958: N/A
TAGS: CH, ECON, EFIN, ETRD, PGOV, PREL, TW
SUBJECT: TAIWAN STOCK EXCHANGE OFFICIALS DOWNPLAY IMPACT OF
CHINESE PORTFOLIO INVESTMENT
TAIPEI 00000577 001.2 OF 002
Summary
-------
1. (SBU) Taiwan opened its securities markets to Chinese
institutional investors in early May, but the Taiwan Stock
Exchange (TSE) is not expecting a large influx of portfolio
investment from China anytime soon. Senior TSE executives
tell AIT that the biggest impact of loosening Taiwan
restrictions on investment from China is a boost to local and
foreign investor sentiment. Over the next few years, the
TSE,s growth strategy focuses on launching a number of
exchange traded funds (ETFs) to attract local investors who
wish to play overseas markets and employ more complex
investment strategies. End Summary.
Taiwan to Allow Portfolio Investment from China
--------------------------------------------- --
2. (U) Taiwan,s stock market is up 40% so far this year
and has risen more than 13% since the conclusion of the most
recent cross-Strait talks on April 26. One heralded outcome
of these talks was the announcement by Taiwan that it would,
for the first time, permit direct and portfolio investment by
Chinese investors in Taiwan. Shortly after the talks,
Taiwan,s Securities and Futures Bureau published new rules
that allow some Chinese investors to invest in Taiwan
securities.
3. (U) The regulations remove a blanket prohibition on
Chinese investors in Taiwan securities markets, but even
under the new rules, Chinese portfolio investment activity is
strictly limited. Only four categories of Chinese investors
are allowed:
--Chinese qualified domestic institutional investors (QDIIs),
--Chinese employees of a Taiwan firm (and they are only
allowed to hold stock in their employer firm granted to them
by their employer),
--Chinese holding equity in foreign firms listed in Taiwan,
and
--any others designated by the SFB (none designated yet).
4. (U) Taiwan still does not allow individual Chinese
investors, except for the limited exceptions above, to
participate in Taiwan markets. The QDIIs also still face
significant restrictions on their Taiwan portfolio
investment. The new regulations limit the amount of funds
invested in Taiwan to 3% of their total assets. This limit
will be raised to 10% after China and Taiwan sign an MOU on
financial sector regulation and supervision. China has yet
to approve QDIIs investing in Taiwan, also pending signature
of an MOU.
5. (U) Taiwan,s regulations were crafted to guarantee that
Chinese investors do not gain control of the entities in
which they are investing. Chinese investors in aggregate are
limited to a 10% stake in any listed company, unless approval
is granted by Taiwan,s Investment Commission. Rules also
state that Chinese investors will not be permitted to gain
"control" or "management" authority over any listed company.
A Chinese investor is not permitted to be elected to the
board of directors. Although Taiwan will allow Chinese
investors to buy and sell equity shares, global depository
receipts, mutual funds, government and corporate bonds,
warrants and other securities, they are not permitted to
engage in margin trading, short sales, lending or providing
loan guarantees.
TSE Not Counting on Chinese Investors
-------------------------------------
6. (SBU) Two senior executives at the TSE told AIT they did
not believe Taiwan equity markets would see an influx of
Chinese investment anytime soon. They pointed out that
individual investors are still barred from investing in the
markets here and noted the restrictions on QDII investments.
They also argued that PRC regulators were more cautious than
their Taiwan counterparts and would likely prevent Chinese
investors from putting "too much money" into the Taiwan
market. The real impact of Taiwan,s opening to Chinese
TAIPEI 00000577 002.2 OF 002
investment, they said, would be the improvement of overall
sentiment which should help generate interest by local and
other foreign investors in the Taiwan market.
7. (SBU) With this analysis, the TSE was not focusing on
attracting Chinese investors, but instead on trying to
attract more Taiwan and foreign (non-Mainland) money by
trying to list a broad range of exchange traded funds (ETFs)
on the TSE. Over the next few months the TSE will seek
regulator approval and agreements with a number of foreign
exchanges to list ETFs representing a variety of foreign
stock indexes, including indexes in China and Hong Kong.
They also hope to offer ETF derivative products which would
allow local investors to place long and short bets on the
market or a particular sector or basket of stocks. The TSE
currently lists 11 ETFs and hopes to have a total of 30 ETFs
trading by the end of the year and as many as 100 within
three years. The executives note that unlike Hong Kong and
some other exchanges in the region, most trading in Taiwan is
driven by local retail investors, and ETFs are most suited to
individual investors.
8. (SBU) Comment: Although these restrictions on Chinese
investors currently in place will likely be further loosened
over time, our TSE contacts still do not believe that
material amounts of portfolio investment from China will
enter Taiwan anytime soon. Their attitude reminds us that
the hype may be ahead of the reality on the ground. End
Comment
YOUNG
Metadata
VZCZCXRO2985
OO RUEHCN RUEHGH RUEHVC
DE RUEHIN #0577/01 1330854
ZNR UUUUU ZZH
O 130854Z MAY 09
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1567
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHWL/AMEMBASSY WELLINGTON 2467
RUEHCHI/AMCONSUL CHIANG MAI 0725
RUEHHM/AMCONSUL HO CHI MINH CITY 0588
RUEHJA/AMCONSUL SURABAYA 0119
RUEAIIA/CIA WASHINGTON DC
RHHJJAA/JICPAC HONOLULU HI
RHHMUNA/USPACOM HONOLULU HI
RUEKJCS/SECDEF WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
Print
You can use this tool to generate a print-friendly PDF of the document 09TAIPEI577_a.
Share
The formal reference of this document is 09TAIPEI577_a, please use it for anything written about this document. This will permit you and others to search for it.
Submit this story
Help Expand The Public Library of US Diplomacy
Your role is important:
WikiLeaks maintains its robust independence through your contributions.
Please see
https://shop.wikileaks.org/donate to learn about all ways to donate.
e-Highlighter
Click to send permalink to address bar, or right-click to copy permalink.
these highlights
Un-highlight all
Un-highlight selectionu
Highlight selectionh