In May the Taiwan Stock Exchange (TSE) took a roadshow on a world tour to tell global investors just how much it had reformed. Shepherded by Citigate Dewe Rogerson, three key TSE people went from Singapore to Hong Kong and on to London and Edinburgh before their finales in New York and Boston. Road warriors included Leon Ku, TSE’s senior executive; Amy Chin, commissioner of the Financial Supervisory Commission; and Tang-Chieh Wu, director general of the Securities and Futures Bureau.
‘The purpose of the roadshow was to persuade major fund managers that the exchange is a good place to do business,’ explains Ku. ‘The message is not really about appealing for foreign investment money; rather, it is concerned with telling people about our reform initiatives. TSE has something of an infamous reputation, unfortunately. It has been too much of a localized domestic operation and has had very little motivation to look for international investors.’
Some persuasion was indeed in order. Taiwan has big ambitions for its stock exchange over the next five years. However, most of those invested in its listed stocks are retail investors who have a reputation for treating the exchange more like a casino than a finance center.
While international holders represent 25 percent of the market, they account for only 15 percent of the exchange’s turnover. In other words, overall foreign shareholders are investing in a more long-term fashion than many of the locals, who are simply playing the market.
Selling the story
It used to be even worse than this, though. In the 1980s Taiwan’s market rose quickly and then lost ground just as fast. The TAIEX, the TSE’s main stock index, rose from 800 in 1985 to more than 12,300 in February 1990. By September 1990, however, it had plummeted to 2500. And now, even though it is cruising comfortably in the 6000-plus range, that’s still half the value it had during the bubble.
Foreigners were safe from the market’s downfall 15 to 20 years ago. At the time, it was almost impossible for them to open a brokerage account, and even if they had made any money, exchange controls prevented them from getting it home. Things have changed, however. An increasing number of international investors have been putting their money into TSE’s companies. Taiwan’s own economy is expanding at a very respectable rate, too, and the deep involvement of many of its companies in the mainland offers overseas investors a stake in the potentially lucrative China market while still enjoying the more robust legal protection the Taiwanese market offers.
Last year, the exchange began a comprehensive reform program to facilitate foreign investment. It eased regulations for foreign investors, allowed longer settlement times, extended the price fluctuation limit, and even began to move toward expensing options.
Steve Champion, CEO of the Taiwan Greater China Fund, is a veteran of the Taiwan markets and a pioneer of the idea of getting a piece of mainland action through Taiwan. He is impressed with the progress that has been made. ‘There are definite signs of improvement in the TSE, even if there is room for more,’ he points out, although he considers ambitions for regional financial hegemony a little premature.
Room to grow
‘While we always have to aim high, I would be content to see us function as a good exchange should in five years,’ observes Ku. ‘As to whether we can become a powerhouse in the region while working with a rather shabby infrastructure, I simply dare not imagine. Things need to be done one step at a time.’
There are certainly a lot of steps to take: international rankings of stock market information quality place Taiwan way behind Singapore and Hong Kong, although that should improve with the reform program recently put in place.
Ku is well known in the region’s finance world and knows it well himself. He decided, in collusion with Citigate, to have a practice run for the roadshow in Singapore and Hong Kong. ‘We did this as a sort of test of our most critical neighbors, which was a good start because it allowed us to accustom our team to these kinds of practices,’ he explains. ‘It was both an eye-opening and a mind-opening experience for the team. I was almost the only person at TSE who had been previously exposed to any kind of investor relations or international investor communications program.’
A running start
Before TSE set off on its world tour, Citigate’s staff came to Taiwan to train the team. Training essentially involved educating the team on what sort of body language to use in front of an international audience, and providing background material. ‘This helped us to organize our minds about precisely what we wanted to deliver,’ says Ku. ‘And, of course, fresh eyes and fresh brains helped us to see ourselves as the outside world would see the TSE and its behavior.’
On this tour, the exchange did not bring along any of the listed companies. Ku’s rationale for this was that TSE wanted audiences to focus on the exchange’s message and not have too many agendas at one time. ‘We can always expand our agenda to bring along listed companies,’ he notes.
Interestingly, despite the highly politicized nature of mainland China and Taiwanese relations, audiences for the roadshow did not raise political issues, instead concentrating on the details of the exchange’s reforms. Ironically, it is the defeat of the former ruling party in Taiwan five years ago that enabled these reforms. ‘[The party] had broken the ties, which made reforming much easier because we did not have to worry so much about the past,’ notes Ku.
Even before the show got on the road, two potential hiccups emerged – both of which were eventually resolved. The first was the decision of Taiwan’s Financial Supervisory Commission to come along on the trip. The second was the departure of the original Citigate executive organizing the roadshow, who was replaced by Anne Pang.
In hindsight, the presence of regulators turned out to be ‘a major boost for credibility,’ Ku recalls. He was similarly impressed with Pang. For her part, Pang says the audiences the team met with in Singapore and Hong Kong were very impressed with the seniority of the roadshow team. ‘They are very hierarchy-conscious in those regions,’ she points out.
The straight goods
After the Asian leg of the trip, the team regrouped in Taiwan to think about the lessons it had learned and to consider whether it needed to adjust its presentation. Fortunately, the initial feedback was very positive – so favorable, in fact, that the TSE chairman was worried it had been fixed, notes Pang.
While Pang had previously put together roadshows for companies, this was the first time the Asia office had done it for an exchange. Still, she was able to draw on the expertise of Citigate’s London office, which helped the Hungarian Stock Exchange two years ago. This involved a lot of late nights confirming details to ensure all the right resources and people were in place to execute the plan.
The difference with this particular roadshow was not just the objective, however, but also the target audience. ‘The target group included fund managers, portfolio managers and dealers with the custodian banks,’ notes Pang. ‘That is a broader group than a company roadshow with a different type of knowledge base, and it meant I had to work closely with Leon to liaise with custodian banks.’
Heartened by its warm reception in Asia, the team went on to London, Edinburgh, New York and Boston. Ku says TSE gave continental Europe a miss because it’s the Anglo-Americans who invest in Taiwan, not the French or Germans. ‘And the Italians still think all roads lead to Rome,’ he adds.
After the roadshow, Citigate interviewed no fewer than 15 of the participating fund managers in Asia, 20 in the UK and eleven in the US. ‘Over 70 percent of them found the roadshow very beneficial because they were previously unaware of the reforms,’ says Pang.
The US was less impressed, mainly because some of them thought the presentations didn’t address all their concerns. This feedback was useful for regulators, as investors were quick to let the team know they thought further reform was needed.
Having plowed the ground, the next step under consideration is a joint roadshow with Taiwanese companies to sow the seed. ‘Lots of Taiwanese companies want international investors, but many of them need to know how to treat institutional investors and improve their investor relations first,’ suggests Pang, clearly eager to help them learn. ‘But first – a vacation!’ adds the Citigate road warrior, who postponed her holiday until the feedback was collated.
