Taiwanese’s love for foreign assets comes back after emerging market sell-off based on our big data analysis

The new foreign investment regulation for Taiwanese lifers is on the road. In the light of the fast asset growth, of which the percentage has increased from 50% in 2014 to 68% in 2018 Q3, it is important to see how far it can expand ( Chart 1 ). We believe the new rules should not dent the quest for overseas investment as lifers are pushed to go abroad due to very low domestic investment return and steady appetite of Taiwanese retail investors for foreign products. In fact, the space that lifers can purchase foreign assets under the new regulations depends on the amount of foreign currency policies that lifers can sell to their clients. Today, foreign currency policies account to 29% of lifers’ foreign assets. The aim of the regulation, thus, is to increase lifers’ natural hedge beyond that ( Chart 2 ). In other words, the investment amount in Formosa bonds or overseas markets will be linked to the interest of Taiwanese investors in holding foreign assets. Therefore, the public view on foreign currency investment is important for lifers to maintain and expand their portfolio of foreign assets. In this regard, we use big data analysis drawing from an open access dataset of media across the globe to gauge Taiwanese image of foreign currency products. We find that Taiwanese foreign investment sentiment largely depends on global risk aversion and the performance of emerging markets. Our results show the sentiment is even more negative during the EM crisis in September 2018, deeply worsening of Taiwanese image of foreign currency investment, than the US stock market sell-off in February 2018 ( Chart 3 ). And it is worth mentioned that the introduction of new foreign investment ceiling happened to coincide in the period with the worst sentiment. However, Taiwanese sentiment for foreign product improved since the market recovered. This development bodes wells for Taiwanese lifers’ additional purchases of Formosa bonds or overseas assets. In addition, the continuous divergence in monetary policy between Taiwan and the FED can only push them further, i.e. the benchmark 10-year government bond spread has widened 1.30% in Januar y 2017 to 2.25% in October 2018. In the same vein, we do not expect a further tighten ing of regulations unless there is huge spike in risk .