The warmth is spreading all over Asia-Pacific at the moment — and Taiwan’s central bank moved on Thursday to cool things down round its neck of the woods. The China Post has the details on some rather frisky fund flows:
Taiwan’s central bank will closely monitor 20 accounts held by foreign investors to see if they are engaged in speculative activities, said Perng Fai-nan, governor of the bank, yesterday…
…Flows into the 5,000 accounts held by foreign investors have totalled US$290 billion in the past 14 months, he said.
“Of those, 20 accounts had very active capital flows and contribute 40 percent of the US$290 billion total flows,” the governor said. “These funds didn’t buy stocks. Instead they park in government bonds, in securities lending and in Taiwan dollar savings accounts.”
Indeed, Reuters added on Thursday that foreign banks have already been asked not to aid their clients in Taiwanese bond sales. Inflows of hot money are also sloshing around the Philippines at the moment, according to local media.
But it’s pretty obvious that there’s a wider story here for Taiwan’s hot money problem — China.
And in particular, speculation over China’s rising inflation plus a possible renminbi hike. As the Global Times explained, almost indignantly:
Over 75 percent of the respondents [to Deutsche Bank's 2010 Alternative Investment Survey, published on Wednesday] now have investments in China, with 26 percent planning to add more, the report said.
This means hot money will continue to swarm into China aiming to profit from the Chinese yuan’s appreciation and rising property prices, said Ding Jianping, a finance professor at Shanghai University of Finance and Economics.
With the recovering economy, about $122 billion in hot money flowed into China in the second quarter of last year. The rise corresponded with the hike in the Chinese stock market and also housing price spikes in major cities.
“The hot money bets on two gains,” Ding said. “They bet that the Chinese yuan will appreciate against the dollar in a matter of time, so they will profit by converting back to the dollar after the appreciation. They also expect to have higher returns on the Chinese housing market.”
After all, Chinese regulators are already acting against hot money within their borders – such as a proposal on Thursday to tax forex transactions, as reported by Dow Jones, or moves to restrict individual currency transfers.
The point is — Taiwan could be rather vulnerable to any broader Chinese policy shift. Its government is keen to finish a trade deal by the summer, BusinessWeek reports. In the mean time, financial integration continues apace — most ominously for all that hot money, this includes currency transactions.
Integration + inflation = integflation? Steamy.
Related links:
The return of Chinese inflation – Editorial Comment / FT
China tightening? Yeah right – FT Alphaville
Reining in the Chinese inflation dragon – FT Alphaville
China’s lukewarm money? – FT Alphaville