When compared to its neighbours in north Asia, deal flow out of Taiwan does not exactly set your pulse racing. Primary ECM volumes have not crossed the $1bn mark since 2012, and 2015 is poised to be another disappointment with just $643m of volumes so far, according to Dealogic.
“It’s just not a very big market,” said a Hong Kong-based head of ECM syndicate. “If you’re talking about IPOs, it’s tough because it’s a developed economy so most of the established Taiwanese firms are already listed.”
If domestic companies are unlikely to help boost numbers for Taiwan, the only other option would be to attract foreign listings, he added. But unlike its peer Hong Kong, which benefits from a never-ending stream of new issuance from China, Taiwan has never enjoyed that privilege.
Non-Chinese issuers are also unlikely to pick Taiwan over Hong Kong as the latter boasts a far deeper equity market and a much higher profile globally, said the syndicate head.
Knowing one’s limits
Authorities at the TWSE though, are aware of the country’s limits and have been trying their best to work with the tools available, according to Chien, who heads a number of units at the exchange, including the listing departments.
“Knowing where we stand as a market is very important because we’re not trying to compete with the likes of Hong Kong in getting the big billion-dollar IPOs,” he told GlobalCapital Asia. “There’s no point doing that because that’s not what our market is designed for.”
Chien explained that the TWSE’s number one priority is to help Taiwanese companies access capital markets for funding.
As Taiwanese businesses slowly eye overseas growth, they are busy setting up affiliates and subsidiaries in international markets. And as an exchange, the TWSE has been evolving and adapting to that trend.
“That is why we’ve been mostly targeting foreign companies that are Taiwanese-linked, for example, subsidiaries or affiliates that are based in China or southeast Asia,” said Chien. “They are the ones we’re trying to bring home.”
The TWSE’s strategy is to not go head-to-head with the likes of Hong Kong, but instead compete with exchanges such as Thailand and Vietnam. Because competing with them can work to Taiwan’s advantage.
The country’s market offers better liquidity, a more developed capital markets regime as well as sectoral advantages when pitted against many of the southeast Asian exchanges, argues Chien. And for businesses in the information technology and manufacturing industries, the north Asian country would be a better place to go.
The TWSE only started looking to woo foreign listings from 2008 and has since been staging many visits to different countries in a bid to ramp up interest.
And the strategy seems to be working, with international issuers making up 13% of the NT$28.1bn ($856m) of new listings volume last year, according to Dealogic. In comparison, they only accounted for 9.2% of volumes in 2013.
Cross-border integration
But the TWSE’s efforts are not simply limited to persuading companies to list. It has also been stepping up efforts in other areas such as improving secondary market liquidity — a pressing issue for many of the region’s smaller exchanges.
Taiwan and Singapore, for example, signed an agreement last year to develop a cross-border trading link similar to the Shanghai-Hong Kong Stock Connect, set to go live by the end of the year. As part of this agreement, a special purpose vehicle will be set up to connect and route orders, as well as transfer payment and settlement instructions between the two exchanges.
Members of the Singapore and Taiwan exchanges will therefore get direct access to buy and sell stocks listed on the two stock markets.
Taiwan also announced a link with Japan earlier this month, which will see the listing of the first leveraged, and inverse exchange traded funds (ETFs) tracking the benchmark Tokyo Price Index on the TWSE.
“A lot of the work we’ve done recently is not just confined to expanding the issuer base,” Chien said. “We have also been trying to increase the products on offer such as allowing the listing of oil and gold ETFs as well as the link with Japan.”
While he agrees that these moves do not contribute directly to primary volumes, it is still important to maintain the exchange’s relevance in the international community.
In addition, the hope is that having a wider range of products on offer will keep investors happy and have them continue investing into Taiwan.
“We are constantly in talks with other jurisdictions to see if we could come up with similar arrangements, but we’re not just targeting anyone because we also need to think whether the link makes sense for us and is relevant to our investors,” he said. “It all goes back to finding that natural link with Taiwan, which is why Singapore and Japan are the first we’ve come to an agreement with.”
Still, Chien remains confident that there will be more cross-border agreements in the future, although it will mostly be in the form of ETFs rather than a full-fledged stock connect. That is because of the complexities involved with linking two stock exchanges together whereas cross-listings of ETFs are simpler to achieve.