Up to $20 billion could be made available for investment into Hong Kong’s CNH market this month after Taiwan’s financial regulator moved to allow domestic insurance firms to invest in renminbi-denominated securities in the city.
The amendment to Article 12 of the regulations governing foreign investments will free insurers to invest in CNH bonds and RMB-denominated red-chips and H-shares, as well as stocks and ETF funds issued by firms listed on the Hang Seng China Enterprises Index.
The amended regulations will be available for public review for seven days and are expected to be implemented before the end of this month, the Financial Supervisory Commission (FSC) states on its website.
As at the end of April this year, Taiwan’s insurance sector had a total of NT$12.8 trillion ($444 billion) in assets under management. Insurers can invest up to 45% of their total assets overseas, while the cap on RMB-denominated assets is 10% of FSC-approved foreign investment. It means up to NT$576 billion could potentially be invested in Hong Kong’s CNH market.
In fact, the regulator gave Taiwanese insurers the go-ahead to invest in stocks and bonds in China last August, but they are still waiting for their qualified foreign institutional investor (QFII) licences to be approved by the China Securities Regulatory Commission.
At present, the only RMB-denominated asset Taiwanese insurers have been able to purchase has been real estate, and even then for own-use rather than as a commercial venture.
This latest deregulation initiative by the FSC is “the result of large insurers’ lobbying efforts”, says one investment manager at a Taiwanese insurer, who preferred to remain anonymous. “We will participate in the CNH market in Hong Kong once the regulation amendment is confirmed.”
The FSC notes in its announcement that insurance companies require more investment options and flexibility in their long-term capital utilisation. It says this new measure should broaden their investment channel, boost investment returns and improve capital efficiency.
Institutional investors in Taiwan have shown great enthusiasm for Hong Kong’s CNH bonds market, but have been stuck on the sidelines. Now that appears about to change.
“Currently the yield of domestic government bonds is quite low and it is therefore difficult for insurance companies to cover their liability costs,” the investment manager adds. “Even though the yield on CNH bonds in Hong Kong is not high either, the appreciation potential of RMB can still boost returns.”