Foreign investors on defensive after Perng Fai-nan's remarks

During a legislative session Wednesday, Perng Fai-nan, governor of the Central Bank of the Republic of China (Taiwan), said foreign capital inflows into the 5,000 accounts held by foreign investors have totaled US$290 billion in the past 14 months. Of those, 20 accounts had very active capital flows and contributed 40 percent of the US$290 billion, he said.

“These funds didn't buy stocks. Instead they park in government bonds, in securities lending and in Taiwan dollar savings accounts,” Perng said. “We'll closely monitor the situation.”

Responding to Perng's remarks, Tseng Hsing-wu, researcher with Merrill Lynch, said the funds are “parked” in non-securities products as foreign investors are “waiting to see what direction Taiwan stocks will take.”

“Taiwan stocks are kind of hard to operate at the current stage,” he said. Taiwan stocks rose slightly yesterday, increasing by 38.5 points, or 0.49 percent, to 7,886.34.

Lin Chao-huan, chairman of J.P. Morgan Taiwan, said foreign funds will continue to flow into Taiwan, as the Financial Supervisory Commission (FSC) has not said that investing in non-stock products was illegal.

“It's not clear whether any of our clients has engaged in speculative activities,” Lin said. “We foreign investors want to do our best to boost stocks' trade volume, whether by purchasing stocks or by securities lending.”

FSC, meanwhile, said it has received data on the 20 accounts that the central bank believed were problematic. The agency has requested that the banks in which the accounts are held explain the situation, it said.

Separately, Taiwan's dollar retreated from the strongest level in 18 months on speculation the central bank intervened to limit gains that may derail recovery in exports.

The local dollar fell 0.3 percent to NT$31.825 against the U.S. currency, according to Taipei Forex Inc. It touched NT$31.667 earlier yesterday, the highest level since Sept. 8, 2008.

The monetary authority intervened to cap gains in the local currency in four of the five trading days last week by buying a large amount of U.S. dollars, the Commercial Times reported on March 13, citing traders it didn't identify.

The average overnight interbank rate, a benchmark for the money market, reached 0.127 percent yesterday, the highest level in 10 months, according to the Taipei Interbank Money Center.

The central bank issued NT$87 billion of certificates of deposit Wednesday, more than the NT$43.7 billion that matured, according to its Web site. Consumer prices rose for a second consecutive month on increased consumer demand during the Lunar New Year holiday, a government report showed March 5.

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