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EDITORIAL: Investment
risks must be controlled
Taiwan and China made a breakthrough last week in pushing for the opening up of
securities markets, paving the way for local securities brokerages to expand
their business into China. The focus is almost all on Beijing¡¦s agreement to
ease investment restrictions on local securities companies.
This progress sends an encouraging message to the local financial sector.
However, before more plans are announced, investors should be cautious because
insufficient financial disclosure by listed Chinese companies has been a
long-term problem in China. Most cross-strait agreements that have been made are
verbal ones, and are not legally binding. One confirmed agreement was that
Taiwan would double the investment ceiling of Chinese institutional investors in
local stock markets from US$500 million to US$1 billion.
On Tuesday last week, China Securities Regulatory Commission Director-General
Tong Daochi (µ£¹D¹£) told a Taipei press conference with his Taiwanese counterpart
that the commission would study the feasibility of lowering capital requirements
for Taiwanese securities brokerages to obtain qualified foreign institutional
investors status in the near future.
Currently, foreign securities firms have to meet a US$5 billion threshold in
applying for a license to trade Chinese yuan-denominated ¡§A¡¨ shares on China¡¦s
stock exchanges in Shanghai and Shenzhen. Taiwanese firms are likely to be
exempted from this rule. The commission is considering a more relaxed regulation
that would take into account the entire assets of local brokerage firms¡¦ parent
companies in meeting the US$5 billion threshold.
Beijing is also studying the possibility of allowing Taiwanese companies to form
securities ventures in China with a stake exceeding 50 percent. Tong said the
commission was also mulling permitting Taiwanese institutions and individual
investors to directly invest in Chinese stock markets using Chinese yuan, with a
cap of 100 billion yuan.
The commission is also considering Taiwan¡¦s proposal to allow Chinese companies
to trade on Taiwanese stock markets in the form of ¡§T shares.¡¨
The announcement is considered a positive response to Taiwanese securities
firms¡¦ long-term aim of tapping China¡¦s stock markets. Fifteen Taiwanese
securities firms have established Chinese offices in preparation for the opening
up of China¡¦s securities markets since Taipei inked an agreement in 2009 to
facilitate cooperation and oversight in the financial sector. However, not one
of them has received a license to trade financial tools so far.
The recent progress gave a boost to the stock prices of Taiwanese financial
services providers with strong securities subsidiaries on speculation that new
Chinese brokerage business would drive growth.
Credit Suisse said in a research note on Wednesday last week that potential rule
relaxations would lift overall sentiment for Taiwan¡¦s financial sector, with
China Development Financial being its top pick.
Shares of Yuanta Financial Holding Co, the nation¡¦s biggest securities house
operator, rose for the fourth straight day to NT$16.05 on Friday, marking the
highest level in more than 10 months. The stock price of China Development
Financial Holding Corp rallied to its strongest level in nine months at NT$8.16.
Two days ahead of Tong¡¦s meeting with Financial Supervisory Commission Chairman
Chen Yuh-chang (³¯¸Î¹ü), China Development announced that it would merge two of its
securities subsidiaries, KGI Securities and Grand Cathay Securities, to create
the nation¡¦s No. 2 broker.
It is important for Taiwanese securities companies to have a new growth driver
to rejuvenate business and reduce the impact of local stock markets on returns.
However, it is also important to control investment risks and to safeguard
investors¡¦ interests when investing in a market like China¡¦s, that has less
corporate governance and greater government control.
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