Confidence boosts shares

The nation's benchmark index continued its upward climb yesterday on what appeared to be a slowing of the presidential recall process and Morgan Stanley Capital International's reweighting of Taiwan stocks on Monday.

Increasing investor confidence sparked the highest turnover in three months -- NT$123.4 billion -- as the TAIEX rose 190.17 points, or 3.24 percent, to close at 6,067.94.

Analysts said that because the recall motion against President Chen Shui-bian (陳水扁) has been temporarily postponed and the odds of the motion passing in the Legislative Yuan are declining, the TAIEX is likely to rebound after a brief consolidation around 6,000.

"Yesterday's turnover was the second trading day above NT$100 billion. If the US stock market performs well in the next few trading days after the US presidential election, the TAIEX could continue its rise toward 6,500 points," said Henry Cheng (鄭百亨), managing director of Manulife Fund Direct.

"The negative impact of the recall motion against President Chen has been gradually declining," Cheng said. "Part of the reason is that some KMT legislators feel that if the president is ousted, James Soong (宋楚瑜), the chairman of People First Party, could rise in power.

"Retail investors are eager to get back into the market before shares rise too high as evidenced by the high turnover."

The rebound has government officials considering a hands-off policy with regard to market intervention.

"If the TAIEX remains stable [today], and investor confidence recovers, the stabilization fund may withdraw from stock market as early as Thursday," said Lin Tzong-yeong (林宗勇), administrative vice finance minister and executive secretary of the NT$500 billion National Stabilization Fund.

"The stabilization fund has never sold one lot of shares since it was established [in March]. It's not currently suitable to sell shares in the market, and the fund has not intention of selling its holdings," Lin said.

A number of legislators visited the Ministry of Finance yesterday to learn more about the stabilization fund's operation.

"The fund's total capitalization is NT$500 billion," Lin said. "Of the total, NT$200 billion is borrowed from the banking industry by using shares of Taiwan Semiconductor Manufacturing Co (台積電) and Chunghwa Telecom (中華電信), which are worth NT$410 billion in collateral.

"As of Wednesday, the value of these shares was NT$454 billion. The fund has borrowed more than NT$100 billion. Another NT$300 billion was about to be borrowed from the four government funds, but this part of loan has not been activated. If it becomes necessary to activate the loan, the fund will borrow funds from the Postal Savings Fund (郵儲基金)."

"The stabilization fund was activated three times since its establishment. The last intervention to be authorized was on Oct. 3," Lin said