Randomly Noted

We can’t really call them capital controls, or even quasi-capital controls. Can we call them capital curbs? Capital management?
Perhaps we can call them Claytons controls, after the nonalcoholic drink that was popular in the 1970s and 1980s for its slogan: “The drink you have, when you’re not having a drink.”

Asian nations aren’t calling their recent actions “capital controls,” and the measures being taken certainly aren’t draconian; so far this year it’s mostly been rhetoric from authorities, about watching hot money flows, while there have been modest steps in Taiwan, South Korea and Indonesia to make it a bit harder for people to move money around.

But it is clear that authorities are growing more anxious about how fast money can come in–and out–of their countries.

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With Singapore’s StarHub announcing it will soon offer an Android-powered phone from Google by way of Taiwan’s HTC Corp., I decided to find out what this is all about. With a 10-year-old Star Wars-and-Lego-obsessed son, I figured anything with “android” in the name would soon become fodder for dinner-table chit-chat. A few Google searches and I’m immersed in the world of mobility, Linux, “cupcakes,” “eclairs” and Marissa Mayer, who apparently adores cupcakes (the fattening ones) and, by the way, is a high-level engineering executive at Google. (All this by way of the web, so hopefully reliable information.) This disclosure of my ignorance of hot new mobile gadgets is just a segue into the topic of Taiwan’s economy. Today’s MSCI index rejig recognizes the island-nation’s recent share price surge. Taiwan’s weighting in the MSCI All Country World Index will rise to 1.41% from 1.3% at the end of May. It’s the biggest increase for any Asia-Pacific market in the index and could pump about NT$15 billion of additional investment in Taiwan’s stock market, DJN reports, citing Fubon Financial’s Joyce Chang. That’s because exchange-traded funds the world over that track the index will pour proportionately more money into Taiwanese shares. Taiwan’s relative out-performance reflects “an influx of money from investors seeking to capitalize on improving relations between Taiwan and China,” write DJN’s Perris  Lee Choon Siong and Jessie Ho.

Taiwan’s top economic planner tells DJN the island urgently needs closer trade ties with mainland China as tariff barriers fall elsewhere in the region, giving other Asian countries a relative advantage with Beijing. DJN’s Daniel Ong Kian Hong interviewed Chen Tian-Jy, minister of the Cabinet-level Council for Economic Planning and Development. Daniel writes, “It is easy to understand this sense of urgency. Taiwan’s exports of petrochemical products to China, according to the economic ministry, face on average an import tariff of 6.5%. The rate for the same type of products exported by Asean nations has steadily fallen to 0.98% this year, and will fall further to 0.25% in 2010, from 6.01% in 2005. China is a huge market, buying around half of the petrochemical products exported by the island…”  The China-Taiwan equation is, of course, politically fraught. But there’s no denying Taiwan’s economic future is inextricably tied to China’s. It’s a tricky geopolitical conundrum but from an investor’s point of view, an interesting opportunity. As CLSA writes, “The story is just beginning, not ending. Relative-return investors, with Taiwan in their benchmark, can certainly not afford to ignore this political dynamic.” Continue reading…