As cross-strait relations warm up, Taiwan now has a better chance to join the renminbi qualified institutional investors (RQFII) programme, which would make investment in Chinese stocks easier.

William Tseng, chairman of the Financial Supervisory Commission (FSC), said in the Legislature on Thursday that the RQFII programme may be launched after it is “unhooked” from the cross-strait service trade pact.

However, he also pointed out that government authorities in China have different views on the “unhooking". This is why the programme has not been launched yet.

But cross-strait relations took a positive turn after the Ma-Xi meeting last weekend, providing a better chance to unhook the RQFII programme, Tseng said.

Many in the finance industry raved about the good news, saying that the RQFII programme will serve as an important offshore renminbi market and help channel Taiwan’s renminbi savings.

The FSC chief concurred and said this will create a win-win situation: as Taiwan channels its excessive renminbi, it also adds cash to China’s capital market.

Benefits of RQFII

The RQFII programme facilitates foreign investment in the mainland via offshore renminbi accounts. Using offshore currency accounts, licensed RQFII can directly invest in A-share equities on both the Shanghai and Shenzhen exchanges.

Without membership of the RQFII programme, investors will have to remit US dollars into China and then convert them into renminbi before making investments in China’s equity markets. Currency exchange fees would be an added cost in this case.

At a summit meeting with FSC officials two years ago, China Securities Regulatory Commission consented to Taiwan’s participation in the RQFII programme with a quota of 100 billion renminbi.

The programme was later included in the cross-strait service trade pact. However, with the delayed implementation of the pact, the programme was not going anywhere either.

Up to 13 countries in the world are currently enrolled in the RQFII programme, including Britain, France, Germany, South Korea, Hong Kong and Singapore. The total RQFII quota stands at 970 billion renminbi.

The FSC chief remains upbeat about Taiwan’s capital market.

The MSCI is due to announce the latest adjustment of its Emerging Markets Index today. Analysts believe the index will reduce the weighting of Taiwan stocks, making local stocks less attractive to foreign capital.

Analysts predict an increase in Chinese stocks’ weighting will squeeze out some Taiwanese stocks from the index.

Tseng said, however, that the decrease in weighting will be small and therefore have little impact on the stock market.

Taiwanese stocks currently make up 12.4 per cent of the index’s weighting. Analysts forecast the share will dip to 12.1 per cent in November and further down to 11.8 per cent in May when the MSCI make another update next year.