Taiwan and China are planning to permit trading of each others’ shares for the first time as ties improve 60 years after their civil war ended.
A so-called trading platform may list as many as 30 stocks from each market, said Schive Chi, chair of the Taiwan Stock Exchange. Now, investors are restricted from directly investing in each others’ equities. An agreement on the dual-listing of exchange-traded funds is also expected this year, he said.
“It will be a step further,” Chi said in a May 4 interview in Taipei. “Instead of trading exchange-traded funds, it will be trading individual stocks.”
The two economies agreed to double weekly flights and lift restrictions on investments in banks as relations that broke when the Communist Party took power in 1949 thaw. China Mobile Ltd became the first state-owned company to invest directly in Taiwan on April 29, sending the Taiex index up 17 percent.
The measure rose 0.1 percent to 6,572.87 at the close, gaining for a sixth day.
Chen Ji, the spokesman at the Shanghai Stock Exchange, didn’t answer calls to his office yesterday and today.
“Investors will definitely be interested” in the cross- trading of China and Taiwan stocks, said Monika Yang, who helps oversee $10 billion at Hamon Asset Management Ltd in Hong Kong. “Investors have a wider variety of shares to trade in. Chinese investors will want to diversify their investment and this is a good way for Taiwan investors to buy Chinese shares.”
Taiwan is also trying to draw as many as 37 Taiwanese-owned companies listed in Hong Kong back to its exchange, Chi said. A separate agreement on so-called ETFs with Hong Kong may be completed by June, he said.
Taiwan and China plan to sign an accord on financial services and a cross-currency settlement system, officials said on April 26. China’s currency, the yuan, isn’t fully convertible, and the country limits foreign ownership of shares traded on mainland exchanges.
China Mobile Ltd said last week it agreed to buy 12 percent of Taiwan’s Far Eastone Telecommunications Co. Far Eastone shares added 5.8 percent since the announcement, while China Mobile gained 8.4 percent.
Allowing cross-trading of Chinese and Taiwanese shares may draw investors away from the island, said Jason Huang, a fund manager at Paradigm Asset Management in Taipei, who helps oversee more than $200 million.
China’s shares are valued at $2.6 trillion, the world’s third-largest stock market, according to data compiled by Bloomberg. Taiwan’s market is worth 20 percent of that, the data show. Daily trading of Chinese stocks averaged at $22.5 billion in the past six months, compared with Taiwan’s $2.7 billion.
“If Chinese stocks are traded in Taiwan, there could be a chance investors will choose to buy only Chinese stocks, marginalising Taiwan shares,” Huang said.
The rally of Taiwanese shares may have outpaced their value because companies haven’t seen the benefits of potential links with China, Mark Mobius, who helps oversee $20 billion in emerging-market assets at Templeton Asset Management Ltd, said in a May 3 interview in Bali, Indonesia.
Want Want China Holdings Ltd became the first Taiwanese- controlled company not listed on the island’s exchange to return following the increased links, raising $100 million in a share sale last month. Want Want, which is based in Shanghai and trades in Hong Kong, is 49.5 percent controlled by Taiwanese billionaire Eng-meng Tsai.
Shares of Want Want, the largest maker of rice crackers in China, have surged 55 percent since they started trading on the Taiwan exchange on April 27, compared with the 15 percent rise in the Taiex.
Taiwan said in July it will scrap a rule that bans companies held by Chinese investors from selling shares on the island’s stock exchange as it eases investment restrictions with the mainland.
Taiwan may also allow residency for investors from mainland China and elsewhere to attract more funds to the island and support the economy.
“We hope to attract not just Chinese investors, but also other international investors as this is in line with our goal of making Taiwan an international financial hub,” Lu Ting- chieh, chief secretary at the Financial Supervisory Commission said by telephone today.
Relations have improved since Taiwan President Ma Ying-jeou took office on May 20, abandoning his predecessor’s pro- independence stance. The two sides ended a 60-year ban on direct shipping, air and postal links on December 15.
“I see many changes, at least for the past half year since the opening of direct flights,” the Taiwan Stock Exchange’s Chi said. “Since then, there have been some positive developments.”