Foreign institutional investors registered net fund inflows in October, reversing four consecutive months of net fund outflows, after the Financial Supervisory Commission (FSC) introduced restrictions on short selling on the stock market at the beginning of the month, according to the FSC.
Data compiled by the FSC, the top financial regulator in Taiwan, showed foreign institutional investors recorded US$456 million in net fund inflows in October after US$577 million in net fund outflows in September.
From the beginning of October, the FSC introduced three rounds of measures to restrict short selling in three weeks, citing the need to ameliorate volatility on the local equity market as foreign institutional investors continued to move funds out of the country in the wake of the aggressive rate hike cycle by the U.S. Federal Reserve.
In the latest round of tightening measures announced on Oct. 21, if a stock closed down by 3.5 percent or more in the previous session, investors are prohibited from using the previous closing price or a lower price to short the stock by borrowing securities.
Fund outflows
During the June-September period, foreign institutional investors registered a total of US$18.84 billion in net fund outflows from Taiwan, and the average monthly net fund outflow has even topped US$5 billion since July, at a time when the interest rate gap between the United States and Taiwan was widening.
Ahead of a 75 basis point hike on Nov. 2, the Fed had raised its key interest rates by 300 basis points since March, when the hawkish American central bank kicked off a rate hike cycle. However, the local central bank has only increased rates by 50 basis points, saying inflation in Taiwan is not as serious as in the U.S.
Rushing to park their funds in U.S. dollar denominated assets, foreign institutional investors recorded US$22.02 billion in net fund outflows in the first 10 months of this year.
Since the government lifted its ban on foreign institutional investments on the local bourse at the end of 1990, foreign institutional investors had accounted for an accumulated US$207.55 billion in net fund inflows into Taiwan as of October, according to FSC data.
From January to October, foreign institutional investors sold a net NT$1.19 trillion (US$37.07 billion) on the local equity market amid global volatility in the wake of the Fed’s aggressive actions to tighten monetary policy to combat high inflation, the FSC said.
Taiwan’s efforts to stabilize markets
In addition to the three rounds of measures to limit short selling, the National Stabilization Fund’s governing committee on July 12 authorized the fund to intervene to shore up share prices.
The NT$500 billion stabilization fund was set up in 2000 by the government to serve as a buffer against unexpected external factors that could disrupt the local bourse.
Source: Focus Taiwan News Channel