Taiwan
06 August 2013
Taiwan is experiencing solid lending volumes and its neighbours are taking note
Image: Shutterstock
Research from Data Explorers (now Markit Securities Finance) in 2011 on Gintech, MediaTek, and Macronix showed that these were the three most borrowed names in Taiwan at that time, and their activities were undeniably similar.
Gintech is a solar cell manufacturer; MediaTek specialises in semiconductor design and sales; and Macronix is a semiconductor manufacturer.
Fast forward to 2013 and the situation is remarkably similar. Looking at Markit Securities Finance’s data showing average short interest in the top 10 Taiwanese firms by market capitalisation, it is clear where interest lies. Technology hardware and equipment, followed by semiconductors and diversified financials are the most shorted sectors, followed by insurance, capital goods and real estate.
In terms of short interest in specific equities, nine out of 10 equities lie within the technology sector—proving that negative investor sentiment in this area still abounds.
Short-lived
To develop Taiwan’s market, the Taiwan stock exchange launched a centralised securities lending and borrowing system in June 2003 to meet the needs of qualified institutional investors. The system provided three kinds of transactions: fixed-rate, competitive bid, and negotiated transaction.
Securities lending and borrowing trading volume for 2011, said the exchange, saw competitive bid transactions account for 32 percent and negotiated transactions account for 68 percent.
But though the exchange saw this development as the time to really cement the country’s market, Taiwanese regulators—much like all regulators—had an uneasy attitude. In November 2011, the Financial Supervisory Commission warned insurance companies that they must stop lending securities to short sellers—a decision which was taken in order to ramp up equities after the benchmark Taiex Index fell.
In a statement, the FSC also said that Taiwan had amended rules to cap the daily maximum short selling of borrowed stocks to 20 percent of the average transaction volume of the past 30 trading days, from a 3 percent limit of outstanding shares per stock.
A spokesperson said at the time that since Taiwan was a retail-dominated market, it was unfair for foreigners to take advantage over local investors. They added that insurers were told that while fees may be gained from lending, it would “reduce the overall value of shares”.
However, the country’s regulations are far more lenient than some of its neighbours. Peter Martin, chairman of the Australian Securities Lending Association (ASLA), said in interview earlier this year that markets such Hong Kong and Taiwan are seeing good growth in lending volumes compared to their more westernised counterpart.
“Unfortunately when it comes to the regulations around what is required prior to executing a short sale Australia is still more onerous than peer markets and that is reflected in the market not seeing the growth witnessed in other Asian markets like Hong Kong and Taiwan.”
A number of foreign institutions have spotted this trend in the market in the last five years. J.P. Morgan Worldwide Securities Services launched securities lending capabilities in Taiwan in 2009, saying that its aim was to help asset managers and institutional investors increase the performance of their securities portfolios with Taiwanese assets while providing them with risk-adjusted returns.
Phil Zywot, of CIBC Mellon, said in an interview at the PASLA conference this year that some of CIBC Mellon’s main focuses are on ‘vanilla’ markets such as Hong Kong, Singapore, South Korea, and Taiwan.
Several others have expressed confidence in Taiwan. Valerie Rossi and Jagdish Hirani of ABN AMRO said in a recent interview that the renminbi qualified foreign institutional investor scheme (RQFII) is going to expand to Taiwan, and further opportunities would be created—including the potential creation of RQFII exchange-traded funds.
The more liberalised a market is, and the more cross-state relationships are developed, the more its securities lending market tends to expand. Taiwan’s only task, it seems, is to keep growing.
Gintech is a solar cell manufacturer; MediaTek specialises in semiconductor design and sales; and Macronix is a semiconductor manufacturer.
Fast forward to 2013 and the situation is remarkably similar. Looking at Markit Securities Finance’s data showing average short interest in the top 10 Taiwanese firms by market capitalisation, it is clear where interest lies. Technology hardware and equipment, followed by semiconductors and diversified financials are the most shorted sectors, followed by insurance, capital goods and real estate.
In terms of short interest in specific equities, nine out of 10 equities lie within the technology sector—proving that negative investor sentiment in this area still abounds.
Short-lived
To develop Taiwan’s market, the Taiwan stock exchange launched a centralised securities lending and borrowing system in June 2003 to meet the needs of qualified institutional investors. The system provided three kinds of transactions: fixed-rate, competitive bid, and negotiated transaction.
Securities lending and borrowing trading volume for 2011, said the exchange, saw competitive bid transactions account for 32 percent and negotiated transactions account for 68 percent.
But though the exchange saw this development as the time to really cement the country’s market, Taiwanese regulators—much like all regulators—had an uneasy attitude. In November 2011, the Financial Supervisory Commission warned insurance companies that they must stop lending securities to short sellers—a decision which was taken in order to ramp up equities after the benchmark Taiex Index fell.
In a statement, the FSC also said that Taiwan had amended rules to cap the daily maximum short selling of borrowed stocks to 20 percent of the average transaction volume of the past 30 trading days, from a 3 percent limit of outstanding shares per stock.
A spokesperson said at the time that since Taiwan was a retail-dominated market, it was unfair for foreigners to take advantage over local investors. They added that insurers were told that while fees may be gained from lending, it would “reduce the overall value of shares”.
However, the country’s regulations are far more lenient than some of its neighbours. Peter Martin, chairman of the Australian Securities Lending Association (ASLA), said in interview earlier this year that markets such Hong Kong and Taiwan are seeing good growth in lending volumes compared to their more westernised counterpart.
“Unfortunately when it comes to the regulations around what is required prior to executing a short sale Australia is still more onerous than peer markets and that is reflected in the market not seeing the growth witnessed in other Asian markets like Hong Kong and Taiwan.”
A number of foreign institutions have spotted this trend in the market in the last five years. J.P. Morgan Worldwide Securities Services launched securities lending capabilities in Taiwan in 2009, saying that its aim was to help asset managers and institutional investors increase the performance of their securities portfolios with Taiwanese assets while providing them with risk-adjusted returns.
Phil Zywot, of CIBC Mellon, said in an interview at the PASLA conference this year that some of CIBC Mellon’s main focuses are on ‘vanilla’ markets such as Hong Kong, Singapore, South Korea, and Taiwan.
Several others have expressed confidence in Taiwan. Valerie Rossi and Jagdish Hirani of ABN AMRO said in a recent interview that the renminbi qualified foreign institutional investor scheme (RQFII) is going to expand to Taiwan, and further opportunities would be created—including the potential creation of RQFII exchange-traded funds.
The more liberalised a market is, and the more cross-state relationships are developed, the more its securities lending market tends to expand. Taiwan’s only task, it seems, is to keep growing.
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