Taiwan CB says hot money returning to markets

Tuesday, 13 March 2012 00:42 - - {{hitsCtrl.values.hits}}

TAIPEI (Reuters): Taiwan’s Central Bank Governor said on Monday that speculative foreign money started returning to Taiwan at the beginning of the year and is continuing to arrive, with money not yet invested in stocks at a higher than healthy level.

Taiwan’s Central Bank has long taken a strong stance against what it sees as destabilising “hot money” flows, repeatedly warning foreign investors that they must use money brought to the island for stock trading and not leave it uninvested or parked in other assets.

In response to questions from lawmakers at a parliamentary hearing, Governor Perng Fai-nan said that some T$170 billion ($5.8 billion) of foreign money had yet to be invested in stocks, but a level of T$120 billion would be “healthy.”

“There are about 6,000 foreign short-term investment accounts in Taiwan, but only about 20 are actively trading and most of the money is buying stocks,” Perng said.

“This money is like a big fish jumping into a small pond, creating volatility in the economy and financial markets.”

Foreign investors were net buyers of Taiwan stocks in December, January and February..

The central bank is keen to protect export-dependent economy from currency volatility and to prevent speculative money from creating asset bubbles. It frequently intervenes in the forex market.

In response to a question on intervention, Perng said the central bank looked at historical movements in currencies and referenced moves in the euro, the yen, China’s yuan and especially the Korean won when deciding on intervention.

Perng also told legislators that he hoped Taiwan and China could sign a deal in the near future on a clearing system for China’s yuan currency, a step towards helping Taiwan grab a part in the internationalisation of the yuan.

“We’ve been talking closely since 2010, but it’s sensitive,” he said. “It needs a high level decision on the other side.”

China is already the biggest export destination for Taiwan’s export-driven economy, but financial sector ties have not kept pace with growth in manufacturing trade.