Middle East Sovereign Fund Enters the Taiwanese Stock Market

Dec 13, 2012 Ι Industry In-Focus Ι Furniture Ι By Philip Liu, CENS
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Taipei, Dec. 13, 2012 (CENS)--Perng Fai-nan, governor of the Central Bank of China (CBC), confirmed for the first time yesterday (Dec. 12) that due to the need of deployment, a certain sovereign wealth fund from the Middle East has invested in Taiwan's stock market recently.

Speaking at the Legislative Yuan, Perng also reported that since December, foreign investors have remitted a net amount of US$1.4 billion (NT$40.7 billion) into Taiwan, becoming a major momentum behind the recent market rally.

Legislator Lai Shih-pao pointed out that the Middle East sovereign fund coming to Taiwan recently is that of Abu Dhabi, the largest sovereign fund in the world, boasting a scale in excess of US$800 billion.

Since sovereign funds mostly engage in long- and medium-term investments, market players believed that their investment would vitalize the local stock market and enhance the confidence of local investors.

Perng remarked that due to their large scale, sovereign funds need to make proper deployment, the major reason for their investment in Taiwan. Statistics show that foreign investors scored net outward remittance in the period from April through July this year but switched to net inward remittance since August up to now. So far, foreign investors have remitted US$4.1 billion (NT$119.3 billion) into Taiwan this year.

Perng noted that sovereign funds have joined the ranks of foreign investors to enter the Taiwanese market, without speculating in the forex market. Up to now, foreign investors have overbought NT$114.3 billion worth of Taiwanese stocks.

Should Taiwan intend to establish a sovereign fund, said Perng, it can emulate the practice of Singapore by issuing bonds in the name of sovereign fund for purchase by pension funds, thereby raising NT-dollar fund for domestic investment. The fund can also purchase forex at the forex market for overseas investments.

Perng, however, refuted the feasibility of appropriating fund from the nation's forex reserves for the establishment of sovereign fund, since sovereign fund is a long-term fund but forex reserves exist for covering deficit in balance of payments, stressing liquidity.

Foreign investors, said Perng, hold large amount of NT-dollar assets, equivalent to 55% of the nation's forex reserves. Therefore, forex reserves must maintain high liquidity and security, in order to meet the unexpected need for massive outward remittance of foreign investors. However, under the premises of security and liquidity, the CBC will do its utmost to enhance its investment returns, according to Perng.
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