HONG KONG - Overseas funds have been
flowing into Taiwan’s stock market to bet on a
possible thaw in relations across the strait from
the mainland after the island's voters elect their
new president on March 22.
Ma Ying-jeou,
the presidential candidate of the opposition
Kuomintang (KMT), which favors closer economic
ties with the mainland, is likely to win the race,
according to polls. Even Frank Hsieh, standing for
the ruling Democratic Progressive Party (DPP), has
pledged to improve ties with Beijing if he wins
the election. Improved relations with the mainland
look likely, then, whoever wins.
An influx
of overseas capital has helped the island’s stock
market rally amid a global stock market slump
triggered by the US
subprime
crisis. The benchmark index TAIEX gained about 12%
to 8,435 on March 12 since trading resumed on
February 12 after the Lunar New Year holiday. The
index dropped a little to close at 8,161 last
Friday.
Analysts said Taiwan stocks had
underperformed in the past few years due to
political factors and the liquidity-driven upswing
would continue as uncertainty over Beijing-Taipei
relations clears.
Keith Tam, vice
president of Fubon Bank (Hong Kong), said that
since KMT’s landslide win this year in legislative
elections, people have become more optimistic that
the island’s economy will improve.
The
benchmark index rose about 5% in the first two
days following the January 12 election after which
the KMT, by clinching 81 of the 113 seats up for
grabs against 27 secured by the DPP, now commands
the two-thirds parliamentary majority required to
approve crucial Bills.
Tam said
institutional investors will buy more Taiwanese
stocks and more funds are expected to flow into
the island, with the uncertainty over cross-strait
relations easing after the presidential election
this Saturday.
Foreign institutions, which
had been net sellers before the legislative
elections, bought a net US$2.97 billion in Taiwan
shares in the four weeks ending March 5, compared
with net foreign selling of US$198 million in Asia
ex-Japan, Kenneth Chan, an analyst at Nomura
International (Hong Kong), said in a research note
on March 7.
Ma and Hsieh have pledged they
would move to promote three direct links with
mainland China, that is direct flights, trade and
mail services, and allow Chinese tourists to
travel directly to the island.
Ma has
pledged to open weekend cross-Strait charter
flights on a regular basis by July and to allow up
to 3,000 mainland tourists to visit each day in
the first year. Hsieh proposes negotiating weekend
charter flights by August while maintaining a
1,000-a-day cap on the number of mainland
tourists.
An increase to 3,000 from the
existing 1,000 daily mainland tourist visits will
contribute 1.4% to the island’s gross domestic
product (GDP) annually, Peter Sutton, head of
research at CLSA Ltd said. Taiwan’s GDP grew 5.7%
last year, according to the Directorate General of
Budget, Accounting and Statistics.
The
average occupancy rate of Taiwan hotels will surge
to 81% in 2010 from 67% in 2007 given 3,000 daily
visitors from the mainland, according to
Citigroup.
Investors are also attracted to
Taiwan shares because of their low price-earnings
(P/E) ratio compared with other stocks in the
region, said Fubon Bank's Tam.
"At
present, stocks listed on the Taiwan stock market
trade at a P/E ratio of 11, in contrast to a P/E
of more than 30 in China’s A-share market, even
after a decline in values of more than 30% from
their peak in October, and 14 in Hong Kong, where
the Hang Seng Index has tumbled more than a
quarter since October 30,'' Tam said.
Fubon Bank (Hong Kong), the only Hong
Kong-incorporated bank allowed to invest in Taiwan
stocks, said the number of new stock accounts
opened so far this year is significantly higher
compared with the whole of last year, declining to
give the exact number.
Hong Kong investors
are pouring money into Taiwan shares to benefit
from the upward momentum of share prices in the
island's market. Of the six Taiwan-share funds
available to retail investors in Hong Kong, the
Taiwan Equity Fund, launched by Manulife
(International) Ltd in January 2007, has seen the
funds it manages almost double US$29.7 million on
March 11 from about $15 million at the end of
2007.
The Taiwan Equity Fund has a high
weighting in Taiwan’s high-tech industry stocks,
which accounted for 39% of the total, as they have
been seriously undervalued, Raymond Kong,
assistant vice president and product manager of
Mutual Funds at Manulife (International) Limited,
said.
Manulife’s China Value Fund has
increased its proportion of equity investment in
Taiwan-listed shares to 8.4% at the end of
February 2008 from 6.5% at the end of September
2007.
Clive McDonnell, analyst of BNP
Paribas Securities (Asia) Ltd, said in a research
note on March 13 that it has upgraded its
recommended weighting in Taiwan to "overweight"
from "underweight".
"Our 12-month index
target is 9,527, implying 13% upside," McDonnell
said.
He attributed the positive
performance of the Taiwan stock market to the
likelihood of a KMT win, which should accelerate
the opening of cross-strait financial and
transport links and tech stocks based on a pick-up
in demand in 2009.
Among the enthusiastic
investors betting on positive performance in the
run-up to the presidential election and its
aftermath, Ivan Fu from Hong Kong can be said as
the epitome.
Fu, a founder of Hong Kong
Wealth Power Center, a research group, has poured
HK$13 million into the island’s stock and futures
markets with some of the members of his research
group since opening an account there in December.
"Regardless of whether the KMT or DPP wins
the race, if [incumbent President] Chen Shui-bian,
who has been annoying China, steps down it will it
herald better cross-strait ties, causing an
improvement in the Taiwanese economy," he said.
He cited Hong Kong's economic recovery
after tourists had been scared away by the 2003
outbreak of severe acute respiratory syndrome, or
SARS. Beijing's contribution consisted in merely
allowing residents of some mainland cities to
travel to Hong Kong on individual visas instead of
with tour groups - helping to spur a tourism
revival that helped to drive up the number of
arrivals in the city by 40% in 2004 compared with
a year earlier. Of 21.8 million visitor arrivals,
mainlanders accounted for more than 55%.
"I believe the island’s economy will
benefit and follow the miracle in Hong Kong, once
the policy of allowing Chinese tourists to travel
directly to the island is pursued," he said.
"Simply looking back at the stock market in Hong
Kong, along with the booming tourism after the
SARS outbreak, I placed my bets on hotel,
consumption and tourism stocks in Taiwan," Fu
said.
Olivia Chung is
a senior Asia Times Online reporter.
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