By Yu-Huay Sun and Weiyi Lim Jan. 5 (Bloomberg) -- Taiwan’s central bank has given overseas investors a week to use funds in the local currency allocated for stocks to purchase shares, seeking to drive foreign exchange speculators out of the island. “They aren’t welcome, if they don’t buy stocks within a week,” Spencer Lin, head of the Central Bank of the Republic of China (Taiwan)’s foreign-exchange department, said by telephone from Taipei today, declining to identify the investors. The Taiwanese dollar advanced to the highest in more than a year yesterday after improving ties with China prompted the fastest inflows in three years. The central bank said yesterday it passed the names of foreign investors with “excessive” holdings of the local currency to the regulator to investigate. “The government is always pretty negative on anyone who wants to speculate on foreign exchange,” said Nicholas Yeo, head of Aberdeen Asset Management Co.’s head of Hong Kong and China equities, who helps manage $40 billion in Asian stocks. “There will be negative sentiments given that people parking there have to withdraw.” Aberdeen’s funds hold shares of the island’s biggest companies, including Taiwan Semiconductor Manufacturing Co., according to data compiled by Bloomberg. The Taiwan dollar climbed 0.3 percent to NT$31.805 as of the midday break, according to Taipei Forex Inc. It touched NT$31.731 yesterday, the strongest level since September 2008. The benchmark Taiex index added 0.04 percent to a 19-month high. Foreign Fund Inflows President Ma Ying-jeou’s government has allowed mainland investors to buy the island’s stocks, acquire stakes in companies and open bank branches. China says Taiwan is part of its territory, though the two sides have been ruled separately since a civil war in 1949. Foreign investors bought more Taiwan shares than they sold for a 10th day yesterday, after being net buyers of $15.6 billion in 2009, the most since 2006. “I think they’re still sensitive to letting their currency strengthen too far ahead of the rest of the region,” said David Cohen, an economist at Action Economics in Singapore. “No one wants to lose competitiveness right now.” The Taiwan dollar has climbed 1.1 percent in the past month, the second-best performer among the 10 most actively traded currencies after the Indonesian rupiah. The island’s financial account, which measures inflows of capital, swung to a surplus of $6.51 billion from a revised deficit of $6.38 billion a year earlier. Curbing Speculation Foreigners have brought more capital into Taiwan than has been used to fund stock purchases, the central bank said in an e-mailed statement yesterday. Taiwan central bank governor Perng Fai-nan said Nov. 19 that speculative capital inflows dropped to about NT$350 billion ($11 billion) from about NT$400 billion a month a earlier. That comment came more than a week after the island’s financial regulator banned foreigners from placing funds in time deposits. Lin declined to give details today of the latest foreign holdings in these accounts. “The central bank is implementing this measure in an attempt to cool down ‘hot’ money from speculating on Taiwanese dollar strength,” said Joe Craven, Asia-Pacific head of currencies and fixed income at Unicredit Markets & Investment Banking in Hong Kong. “They don’t mind so much the money coming into their equity markets but that excess monies are being used as a pure currency play.” Blocking ‘Huge’ Flows Foreign-exchange reserves rose by $63 billion in the past year to $341.2 billion, according to a Nov. 5 central bank report, raising speculation the central bank may have intervened by buying U.S. dollars. October’s increase of $9 billion was the biggest this year. “The central bank is now trying to block huge fund flows after letting the Taiwan dollar rise to a certain price, as the flows are so big,” said Tigr Cheng, a strategist at Polaris Securities Co. in Taipei. “They won’t fight foreign investors head on.” The central bank quoted comments by Joseph Stiglitz, the Nobel Prize-winning economist, that emerging countries should be able to control the flow of capital from developed nations to keep asset bubbles from developing. The monetary authority also cited a United Nations report that said rapid fund flows “may be unfavorable for sound economic development for developing countries in Asia.” Taiwan’s gross domestic product shrank 1.29 percent in the three months through September, the least in a year, after a revised 6.85 percent contraction in the second quarter, the statistics bureau said in November. An index of Taiwan’s leading indicators, a gauge of economic conditions three months ahead, rose 0.7 percent in November from the previous month, the Council for Economic Planning and Development said last week. To contact the reporter on this story: Yu-Huay Sun in Taipei at ysun7@bloomberg.net; Weiyi Lim in Taipei at Wlim26@bloomberg.net

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