ETF arrives in Taiwan

Taiwan's first exchange traded fund (ETF) will be launched today (Monday) by the Taipei-based consortium of State Street Global Advisors and Polaris International Securities Investment Trust. The Taiwan ETF is based on the TSEC Taiwan 50 Index, the relatively new index, launched last November by the Taiwan Stock Exchange and the FSTE Group. The fund is called the Taiwan Top 50 Tracker Fund, or TTT.

The fund size is currently $100 million, with seed money from the 17 participating brokers. All the participating brokers bar one are local, with the odd one out being a locally based Japanese brokerage. Foreign brokers were barred from the primary market of the ETF due to regulatory restrictions.

Winnie Pun, principal and director of investments at State Street in Taipei, says that the ultimate size of the fund is difficult to predict but that in mature markets ETFs generally grow to around 1% of the market capitalisation of the index it is based on. That would mean the Taiwan ETF could grow to about $2 billion based on current market capitalisation of the Taiwan market of approximately $200 billion.

Pun believes that Taiwanese investors will snap up the ETF. She says retail investors took to the options market very quickly, showing that they are not afraid of new products. Pun says the same will happen with the ETF.

The fund has been put together very quickly. It is just five-and-a-half months since the Taiwan Stock Exchange granted State Street and Polaris the license to launch an ETF. State Street dominates the Asian market in ETFs with the Tracker Fund in Hong Kong, the streetTRACKS Straits Times Index Fund in Singapore, the KOSPI 200 ETF and now the Taiwan ETF. Pun says that State Street is currently working with the Kuala Lumpur Stock Exchange to launch an ETF there.

The introduction of the ETF to Taiwan is a step forward for financial regulation in Taiwan and should benefit the whole market, in Pun's opinion. She describes the opening of this market as a 'financial super highway,' leading to the introduction of other products in the market. At the same time the ETF is launched, the security lending system is to be introduced and index futures on the Taiwan 50. The ETF's launch is certainly seen as significant in Taiwan itself with the listing ceremony to be attended by Premier Yu Shyi-kun and the Finance Minister Liu Chuan, as well as the chairmen of the SFC, the stock exchange and the futures exchange.