Taiwan News

Taiwan's decision to ban foreign investors from parking funds in time deposits is having little market effect. There did not seem to be unusual movement. While the stock market was up 1%, it seemed largely in line with most of the regional equity markets and not a flight from the time deposits. Bonds were firm as well, but again, nothing unusual. Some local contacts suspect that as the time deposits mature, that it will put a bid tone under Taiwanese asset prices. However, there are also some money market alternative as well. According to yesterday's statement by the Financial Supervisory Commission, foreign investors may still invest up to 30% of thicker remitted funds in short-term (maturity of less than 1 year) financial products. Brazil, who had imposed the 2% IOF (tax on BRL purchases for bonds and shares) is also not finding much success with its foray back into capital controls. The currency itself is essentially unchanged since the tax was announced on Oct 19th. However, the local press is fanning speculation that more measures are in the work and this may be deterring short-term players from push the dollar much below the BRL1.70 level. There are reports that measures under consideration including stepped up intervention with the Treasury joining the central bank, encouraging capital outflows, and schemes that would insulate the economy from the demand for Brazilian financial assets. Lastly there is also talk of raising the tax to 4% but exempting equities. There seems to be serious drawbacks and issues of effectiveness of all these measures to be sure, but the underlying point in both Taiwan and Brazil is that some developing countries are wresting with the flood of portfolio capital inflows.