Politics

Central bank monitors ‘hot money’

• Publication Date：04/20/2010
• Source： Economic Daily News

The Central Bank of the Republic of China will demand “hot money” estimated around NT$360 billion (US$11.43 billion) invest in the local stock market as soon as possible.

Chou A-ting, deputy governor of the CBC, told the parliament April 19 that a total of NT$510 billion foreign funds has not been used for stock investments as indicated in their applications, with NT$160 billion of that amount kept in bank savings, NT$230 billion in government bonds and NT$120 billion in securities trade guarantees.

Excluding the NT$150 billion in working funds held by foreign fund managers from the total foreign capital, the outstanding NT$360 billion in hot money has not been applied to the equity market.

Instead of buying U.S. T-bonds that carry returns of 3 percent to 4 percent, the abovementioned foreign funds are parked in local T-bonds that generate returns of only 1.4 percent to 1.5 percent. This foreign money is apparently pegged for speculative trading in the foreign exchange market, Chou said.

The guarantees for short sale stock transactions have increased to NT$120 billion from NT$80 billion, triggering concerns over any forex speculation, he added.

Foreign capital outflow dragged the local stock and forex markets down April 19, according to unidentified sources . The local bourse danced to the tune of global peers as the U.S. Securities and Exchange Commission accused Goldman Sachs of fraud linked to collateralized debt obligations and a volcano in Iceland spewed ash high into the atmosphere, disrupting air traffic across Europe.

At the close of trading April 19, the Taiwan Stock Exchange’s benchmark index fell more than 257 points to stand below 8,000 points. The New Taiwan dollar plunged NT$0.102 to end at NT$31.492 against the U.S. dollar on turnover of US$1.37 billion. Foreign investors were net sellers of stocks worth NT$3.5 billion. An unnamed executive with a foreign bank said foreign investors remitted more than US$200 million outward, marking their first such outbound move in nearly one month.

While the local currency lost more ground, the CBC was still concerned about suspected speculation by foreign investors and their remarks concerning a possible upturn in the NT dollar. According to Chou, the CBC has instructed Goldman Sachs to explain how they concluded that the local currency was undervalued by 20 percent.

Most Asian currencies, with the exception of the Japanese yen, fell against the U.S. dollar April 19. Market participants bought the greenback through non-delivery forward contracts, banks executives said. The bullish run in the NT dollar could face correction in the near term, they noted. (HML-THN)