The TAIEX surged 151.97 to 8,052.31 yesterday, closing above 8,000 for the first time since Sept. 18. Turnover soared to NT$190.6 billion, the highest since Sept. 1.
The rise was triggered by several factors including the government's decision to double the maximum limit on investment allowed for a single qualified foreign institutional investor to US$1.2 billion. The government has also introduced measures to help traditional industries.
"It looks certain that the TAIEX will go up now that the index has breached the resistance barrier of 7,850 to 7,950," said Liang Chi-fang (梁薺??, assistant vice president of the institutional investors department at Core Pacific Securities Investment Consulting (京華證券).
John Brebeck, an analyst at Jardine Fleming Taiwan Securities, predicted that the TAIEX would reach 8,500 within two weeks.
Liang attributed yesterday's rally to both the government's announcement to double the maximum limit for any single qualified foreign institutional investor, and to the rapid rise of the NASDAQ market last week. The NASDAQ posted its 13th record close in 16 trading sessions on Nov. 19.
Analysts at security firms believed the new maximum foreign investment limit will greatly encourage foreign investors to invest in Taiwan. It will also have a long-term positive effect on the TWSE.
The government's decision to double the maximum limit on investment for any foreign institutional investor was seen by industry sources as a move to respond to Morgan Stanley Capital International's suggestion that the government speed up its relaxation on regulations regarding such investment.
On Aug. 12, MSCI announced that it would give Taiwan a greater weighting in its indexes, slated to take effect in February next year. Then earlier this month, MSCI said that it would postpone raising Taiwan's weighting because of a potential computer bug related to the leap year date of Feb. 29, 2000. However, local media reported that an executive from MSCI had said that the speed of MSCI's raising Taiwan's weighting depended on the government's quickness in relaxing regulations regarding foreign institutional investors' investments.
Analysts believed that new measures announced recently by the government to help traditional industries also boosted the share prices of companies in those industries. However, they believed that the effect of the government's measures on share prices of traditional industries is a short-term one.
The government is preparing to ease the tax burden on manufacturers in traditional industries that do not benefit from investment incentives as much as the electronic sector does. It is also using state-controlled funds to invest in traditional industries, with the hope of boosting share prices.
James Chu, an analyst in Credit Swiss Investment Consulting (Taiwan), also attributed yes-terday's rally to the intense interest in Internet- and software-related stocks. Companies such as Acer Inc or CMC Magnetics Corp have seen their share prices soar. Acer surged 6.9 percent to NT$77.5 yesterday and CMC Magnetics rose 4.3 percent to NT$145 yesterday.
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