Taiwan equity data supplied by IHS Markit
- Taiwan is the fourth largest market in Asia Pacific
Revenues jumped by a fifth to $87m in 2016
- Balances fell by a tenth to $3.6bn but fees
counterbalanced this by jumping by a third
Tech firms continue to drive revenues in the
- The value of lendable inventory grew by 14% to $39bn
Taiwan’s bourse made it easier for market
participants to look up rules and regulations on securities
borrowing and lending (SBL) in February. The welcome move saw
the Taiwan Stock Exchange (TWSE) collect 14 letters of
interpretation regarding the practical aspect of SBL and place
them under the respective chapters and articles.
Eventually, the exchange plan is to have all the rules covering
SBL rules in one place – including regulations
governing the opening of an SBL account at a brokerage, how to
price SBL and how a lender makes a request for an earlier than
planned return of securities.
At the same time, TWSE also announced a new piece of
legislation which forbids securities borrowers from taking out
any new loans within 10 days of the deadline of an existing
The calculation of collateral value, related to submission,
withdrawal, and the marking-tomarket of foreign currency
collaterals, were updated.
Officials have continuously modified SBL rules over the last
several years, showing careful thought and commitment to the
securities lending industry. The 2016 changes to the
regulations were also designed to boost securities
"The capacity for securities-based lending was enlarged, thus
enhancing market liquidity," a spokesperson said at the time,
adding that the number of securities eligible for day trading
varies slightly on daily basis.
Regulators have also reduced the securities transaction tax
(STT). Regardless of the gain or loss derived from trading of
securities, the STT is imposed based on the transaction amount.
The move by finance ministers to lower the rate to 0.15% from
the previous 0.3% from the start of 2017 pleased local stock
investors and could boost market turnover going
In part, these modifications combined with regulatory
flexibility have led to Taiwan becoming one of the hottest
Asian SBL markets. Healthcare and biotech stocks saw strong
demand from borrowers in 2016. OBI Pharma was one of the
top-grossing name in the Taiwanese securities lending
In 2016, IHS Markit equity statistics show the average
lendable totalled $39bn during 2016 with $3.6bn out on loan.
The loans commanding an average fee of 2.31%, beating
2015’s 1.71% figure even through more assets were
then out on loan ($4bn on average).
Even so, total lendable assets and revenues in Taiwan still
fall behind the likes of Japan, Hong Kong, and South Korea.
Lending occurs, but in an imperfect structure.
Looking ahead, lenders and borrowers should keep a close eye on
the global macro environment and domestic issues impacting
"There has been improvement in near-term earnings
momentum and a tech-led cyclical recovery in Taiwan. Positive
export/production momentum appears to also be building in some
non-tech sectors, such as metals, chemicals and machineries,"
HSBC analysts wrote in a monthly investment outlook in
"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
"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