Global Economics

Taiwan: Hedge Funds Are Welcome


An island flooded with liquidity beckons, says Lee Shyan-Yuan, a commissioner at Taiwan's Financial Supervisory Commission

Lee Shyan-Yuan, one of several commissioners at Taiwan's Financial Supervisory Commission (FSC), believes attracting hedge funds to the market would be a smart move.

He is courting hedge funds to invest in Taiwan and raise money from investors in that market. That's a bold move from a regulator, considering that many of his peers in other markets in Asia have not yet fully embraced hedge funds; some even still consider them the enemy. Hedge funds, after all, have been blamed—justifiably or not—at least in part for some of the difficult periods in Asia's financial markets, most notably the regional financial crisis beginning in 1997.

"This is an excellent environment for hedge funds," Lee says.

Among the pluses of investing in Taiwan is its undervalued currency and stable foreign exchange regime, Lee says, that allows for relatively cheap access to local securities. He urges hedge funds to look more closely at opportunities in Taiwan's equities, fixed income, currencies, and interest rates markets.

Attracting hedge funds is in line with Taiwan's efforts to attract investors in general.

For those looking for more traditional investments, Taiwan equities are no longer as expensive as they used to be. Price-to-earnings ratios have fallen significantly and are now able to compete more with other Asian markets such as Korea, Hong Kong, and Singapore when it comes to attracting value investors. Ongoing legal reforms designed to make the use of international best practices more widespread in Taiwan is also expected to work in its favour, Lee says.

Taiwan's fixed-income industry—unloved by many international investors because of low yields and withholding tax that eats into returns—is set to undergo reforms in the areas of products and securitisation. Lee sees many opportunities for investors in this asset class.

The M&A environment is also favourable, Lee says, noting there are many acquisition opportunities in Taiwan because of low valuations, corporate liquidity, and the undervalued currency. The FSC, he says, is ready to be open-minded about potential investments to Taiwan.

Asset managers are also welcome to raise funds in Taiwan, Lee says. "Taiwan is flooded with liquidity," he says. "There is a clear need for new assets to absorb these.

The potential to raise funds is certainly there. A total of $783.86 billion is currently parked in cash deposits in Taiwan, producing returns of 2% annually; the central bank has $270 billion in similar low-yielding deposits.

The FSC relaxed restriction on foreign investments in recent months. Insurers are allowed to allocate up to 45% of total assets to overseas, of which 10% exposure is allowed for foreign real estate.

The FSC is looking to relax more investment regulations, Lee says. He looks forward to an up-to-date and open regulatory environment in Taiwan that will be able to compete with other markets in the coming years.

Liz Mak is a researcher for Asian Investor.

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