Taiwan's main capital markets have felt the pinch of the global financial turmoil in 2008, with the stock market plunging in the second half of the year and bond yields approaching all-time-lows. However, the underlying strength of the economy combined with efforts to further expand and liberalise the markets could see a return to growth in 2009.
The activities of Taiwan's capital markets are monitored by the Financial Supervisory Commission (FSC), which was established in 2004 as an independent body with the task of consolidating the supervision of banking, securities and insurance sectors. Taiwan's financial industry is now regulated as a single sector, improving efficiency and accountability.
The cornerstone of the country's capital markets is the Taiwan Stock Exchange (STE). Founded in 1961, the STE began trading the following year, with just 18 firms listed by the end of 1962. Since that time, the STE has established itself as one of the premier exchanges in the region, with more than 700 companies listed, representing total value of $664bn as of the end of 2007, according the World Federation of Exchanges. Though outperforming many of Asia's stock markets in the early part of 2008, gaining 3% in the first quarter of the year, compared to falls of 20.29%, 23.10% and 13% on the Singapore, Hong Kong and China exchanges respectively, the effects of the global economic downturn began to take their toll thereafter. By the end of the year, the STE Weighted Index (TAIEX) closed at 4591.22, 42% down from the opening of 2008.
The exchange is operated by the Taiwan Stock Exchange Corporation (TSEC), a private corporate body with six of its 15 board members appointed by the government. On December 31, the TSEC issued a statement saying it was planning to set up holding company for Taiwan''s stock and futures exchanges by the second half of 2008, in preparation for a public listing.
The plan is in line with a government proposal to merge the TSE with three institutions with a view to increasing efficiency and reduce costs: the Taiwan Futures Exchange; the GreTai Securities Market (GTSM), the country's largest exchange for bonds; and Taiwan Depository and Clearing Corporation. .
With the deepening of the international financial crisis, the TSE is looking to broaden its horizon and attract more foreign investment, in particular reaching out to mainland China. To this end, in mid-Janurary, TSEC Chairman Schive Chi announced plans for the cross-listing of exchange traded funds (ETFs) with the Shanghai stock market.
Similar plans to establish cross-listed EFTs with the London Stock Exchange were announced on January 17 by Chi, who said the measure could be in place by the middle of the year.
Another measure aimed at boosting capital inflow from China was the passing of legislation in December to permit China''s Qualified Domestic Institutional Investors -financial firms based on the mainland that are authorised to invest some of their clients' funds overseas- to buy local stocks and futures.
The TSE is also considering to boost trading activity by removing the daily equity trading limit, which restricts the movement of shares to just 7% a day. This move would serve to encourage more local and foreign firms to list on the exchange and prompt investors to return to the market, Chi told the local press on December 31.
Apart from the stock exchange, the most commonly used method of raising business capital in Taiwan is the bond market. According to a statement issued by the GTSM last June, trading in Taiwan's bond market totaled $6.3bn in 2007, with trading in the first quarter of 2008 reaching $1.36bn.
The most recent treasury bond auction, held on December 23, reflected the sluggish nature of the market. Yields on the $1.2bn 10-year bond were set at 1.404%, below expectations and not far off the all-time-low of 1.3120%.
In total, the state auctioned $12.2bn worth of five, 10 and 20-year bonds in 2008, with more issued expected this year as the government looks to fund its economic stimulus programme.
With the TSE predicting as many as 18 new initial public offerings this year, twice the 2008 figure, and a number of Taiwanese companies seeking to roll over convertible bonds falling this year, activity in Taiwan's capital markets could be set to ramp up.