Taiwan corporate debt limits seen curbing currency speculation
Taiwan has imposed restrictions on foreign investment in corporate bonds in a move seen as an effort to curb speculation in the island's currency.
The Financial Supervisory Commission (FSC) would cap overseas investors' holdings of company debt and bank debentures at 30 per cent of their Taiwanese securities from yesterday, according to a document sent to lenders.
Previously, there was no limit. Such buyers' holdings of government bonds, money market instruments and derivatives were already restricted to 30 per cent.
Taiwan's dollar has strengthened 1.7 per cent against the greenback in 2015 in Asia's best performance on speculation the central bank will refrain from joining a global wave of monetary easing.
It has also rallied against Japan's yen and South Korea's won, harming the island's exporters who compete with their counterparts from those countries. Taiwan attracted US$70 billion of net inflows in the first three months of the year, FSC data show.
"As fund inflows have been strong recently, the move was probably to restrict the channels through which foreign investors can park their funds," said Woods Chen, an economist at Ta Chong Bank in Taipei. The government is "also hoping to alleviate the ample liquidity", he said.
The one-month Taipei interbank offered rate fell to the lowest level since 2011 this month.
Taiwanese authorities have a track record of taking steps to deter currency speculation and reduce volatility. Taiwan's stock exchange revoked the registration of a foreign institutional investor for the first time in 2013 for parking funds without using them to buy shares.
The restrictions may push up yields on local-currency corporate bonds maturing within two years as such notes are popular with foreign investors, said Morgan Tsai, a debt trader at KGI Securities in Taipei. There is currently no official data showing overseas holdings of domestic debt.
The local dollar fell 0.2 per cent on Tuesday to close at NT$31.173 against the greenback, Taipei Forex prices showed.
