UPDATE 1-Taiwan to let mutual funds buy China, HK stocks

(Adds fund manager comments, details)

By Faith Hung and Ricci Chan

TAIPEI Oct 24 (Reuters) - Taiwan has given the go-ahead for onshore mutual funds to invest in Chinese, Hong Kong and Macau stocks, the island's cabinet said on Wednesday, as funds seek opportunities for better returns via some of the world's best-performing markets.

The onshore funds -- with an estimated T$2.2 trillion ($67.5 billion) under management -- can put up to 0.4 percent of their assets in mainland-listed shares, and as much as a combined 10 percent in Hong Kong-listed H-shares and red-chip shares, the Executive Yuan, or cabinet, said in a statement.

"This can help boost the performance of domestic mutual funds as well as the competence of local fund firms," the cabinet said, without giving further details.

Taiwan's fund industry has repeatedly asked the government to allow onshore funds to invest in China and Hong Kong shares to meet investor demand.

Only offshore funds, which have T$1.8 trillion in client assets, can currently invest in such stocks, with the same ceiling. Fund managers welcomed the move.

"This will make onshore funds more attractive to investors, because Hong Kong and China shares have been hot this year," said Sheng Yen, who manages T$6.3 billion for Franklin Templeton First Taiwan.

"We would put 5 percent of our client assets in Hong Kong stocks. That would not be too much," said Ann Kao, head of mutual fund sales at JP Morgan Asset Management, part of the fund management arm of JPMorgan Chase & Co (JPM.N).

Onshore funds are registered in Taiwan, while offshore funds are registered outside the island. ($1 = T$32.6)