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Country Profile: Taiwan's securities finance market

15 March 2017

Looking ahead, lenders and borrowers should keep a close eye on the global macro environment and domestic issues impacting Taiwanese securities

"Taiwan maintains its competitiveness in the global themes of Internet of things and electric vehicles. The government focuses on revamping the economy through cultivating high-tech/ innovative industries and trade & investment policies (to diversify the product mix & markets)."

Meanwhile, there are potential threats to equity market prices. US trade, tax and foreign policies under a Trump administration casts significant uncertainty over Taiwan’s economic and market outlook, according to HSBC. This is due to a combination of openness to trade, large direct and indirect exports to the US, equity market exposure to exporter sectors, and current security relationships with the US.

The tech sector is also facing challenges from muted global end demand and increasing competition throughout the supply from China. Alternative growth drivers – other than tech, manufacturing and exports – have not been built.

"Any tension in the Sino-US-Taiwan relations or deterioration in cross-strait relationship under the new government remains a concern, with pressure from China continuing to complicate Taiwan’s progress in negotiating free trade agreements with major trading partners and Chinese tourist arrivals in Taiwan slowing sharply," HSBC’s note added. "Currency and commodity price volatility is a swing factor for exports, the economy and earnings."

ICBC Standard Bank: Expert eye on repo

Taiwan is a large market for repo and the presence of large financial groups, such as Sinopac, KGI and Yuanta, along with a number of other significant asset holders, means that there is a considerable scope for financing. The participants are experienced users of GMRA, and the open and transparent legal system places no issues around netting.

The amount of international business conducted locally depends on the attractiveness of repo interest rates compared to the Taiwan Futures Exchange (TAIFEX), which tracks the provision of cash from the Central Bank. The market is flexible and adaptable, and statistics show that the bulk of trades in the market are in the short-term.

Eric Li, repo trader at KGI Securities, sees the need for financing to further expand in the domestic market in 2017. "Given the low interest rate environment in the domestic market and the relatively lucrative US dollar-denominated papers, Taiwan’s market has been showing strong demand since last year, and is expected to remain in its strong momentum for growth in 2017."

In general, the diversity of names and the overall liquidity in Taiwan’s repo market grew steadily during 2016 and it is expected to remain highly active and favourable for trading among the dealers .

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