Taiwan acts to attract more foreign investment
Category: China, Taiwan
By Hui Ching-hoo
Fund managers set their sights on China
Taiwan’s Securities Investment Trust & Consulting Association (SITCA) is working towards forging better ties with China to provide greater investment opportunities for its fund management industry.
The island state’s onshore mutual fund market had contracted from NT$1.83 trillion (US$61.8 billion) at the end of March 2011 to $1.81 trillion one year later. This was despite the number of funds on offer rising from 571 to 601 over the same period, according to statistics from SITCA.
Although the industry showed signs of recovery in the first quarter of this year, overall market conditions are expected to remain volatile for the remainder of the year, according to Henry Lin, chairman of SITCA.
Mr. Lin pointed out that the unfavourable market conditions had wiped out as much as 10% AUM of the onshore equity funds last year. This compared to a growth of 55.9% in AUM for the high yield bond funds.
The equities funds regained their growth momentum in the first quarter: 75% of local equities funds outperformed the market benchmarks, while offshore peers with their underlying themes in Asia, Greater China, Europe, and emerging markets, registered a return of somewhere between 6% and 8%.
Despite the short-term rebound, Mr. Lin remains cautious on the industry outlook, due to the proposed implementation of capital gains tax. The taxation, combined with the European economic woes, may place the mutual fund industry in jeopardy this year.
To mitigate the market uncertainty, Taiwanese fund managers are setting their sights on the China market because of the country’s vibrant economy.
According to Mr. Lin, in early May this year, SITCA had a discussion with the China Securities Regulatory Commission (CSRC) in Beijing concerning how to approve additional qualified foreign institutional investor (QFII) quotas for existing QFII institutions. SITCA urged the Mainland watchdog to raise the total amount of QFII quotas from the current US$500 million to US$1 billion for Taiwanese financial institutions, Mr. Lin says.
In addition, Taiwan’s regulator is studying the feasibility of issuing local and foreign currency-denominated fund products in order to promote RMB fundraising. It also called on its Chinese counterpart to loosen the qualified domestic institutional investor (QDII) requirement, allowing more Mainland institutions to invest in Taiwan.
On distribution channels, Mr. Lin expects Taiwan’s offshore fund products will benefit from the impending finalisation of the China Banking Regulatory Commission’s (CBRC) rules on “MOU (memorandum of understanding) and EOL (executive officer’s license) with Overseas Regulators of Overseas Wealth Management on behalf of Clients”. With this provision, Mainlanders are allowed to access Taiwan’s offshore fund products through local banking networks.
Mr. Lin states that the RMB fund pool is growing exponentially in Taiwan since the Financial Supervisory Commission (FSC) allowed the island offshore banking units and overseas branches of domestic banks to engage in RMB businesses last year. “SITCA has been in discussion with the CSRC in Beijing over the possibility of launching a Hong Kong RQFII-like system to repatriate the overseas-raised RMB back to China,” he says.
However, Mr. Lin admits that the Taiwanese regulator finds it difficult to apply the program in practice as Beijing currently only grants RQFII licenses to overseas subsidiaries of Mainland fund houses and securities brokerages in Hong Kong.
In the local market, with a growing number of foreign institutional investors increasing their exposure to Taiwan, the regulator is streamlining the approval procedure to encourage more foreign investors to outsource their mandates to onshore fund managers.
Separately, offshore funds are growing significantly in size compared to their onshore counterparts. As at the end of February, local investors had placed a total of $2.41 trillion in 1022 cross-border fund products.
With the increasing market share of offshore funds, the market watchdog is putting more effort into investor protection; for instance, shoring up product education for fund distributors and master agencies, Mr. Lin concludes.
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