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Asian stocks gain, MSCI move boosts TAIEX

"The MSCI move is surely a positive factor that will help bring in more foreign funds in the mid to long-term."

Kevin Lin, a manager at Shinkong Investment Trust Co

Asian stocks advanced this week as earnings and investments by US companies bolstered confidence higher interest rates won't slow corporate spending. Furukawa Electric Co and Samsung Electronics Co led gains.

"US corporate earnings have been very good, profits and sales have climbed and sooner or later companies will once again start investing in technology," said Nicolo Foscari, a fund manager at Credit Suisse Asset Management in Milan, which oversees about US$7.3 billion.

The Morgan Stanley Capital International Asia-Pacific Index, which consists of more than 900 stocks, climbed for a second week in three, rising 3.2 percent to 91.61. The measure that tracks computer-related stocks was the biggest gainer among 10 industry groups within the MSCI Asia-Pacific Index.

The Hang Seng China Enterprises Index added 7.8 percent after China's central bank denied reports that it plans to raise interest rates and a top banking regulator told lenders to avoid cutting off all new lending. All 37 shares of Chinese companies, or H-shares, tracked by the index advanced, putting it ahead of 59 other global benchmarks compiled by Bloomberg data this week.

The TAIEX had its biggest weekly surge since the five days ended April 2, climbing 4.2 percent. Shares rose after MSCI said it will give full weight to the nation's stocks in its global indexes. The move may prompt investors tracking MSCI benchmarks to buy about US$4 billion of the nation's equities.

The TAIEX, along with benchmarks in Japan, Hong Kong and Indonesia, gained for a second week in three. The Philippine Stock Exchange Composite Index added 3.1 percent, its biggest weekly jump since the period ended April 23, after President Gloria Arroyo won the country's election.

Furukawa Electric, the world's second-largest maker of optical fiber, added 13 percent this week. Samsung Electronics, the world's No. 3 cellphone maker, surged 11 percent, completing its first weekly gain in four.

Earnings at Standard & Poor's 500 companies are forecast to grow 18.6 percent for this year, up from 14.9 percent at the end of March, according to Thomson Financial. Spending by phone companies such as SBC Communications Inc and Sprint Corp also helped ease concerns that higher borrowing costs will stall spending in the US, the biggest destination for Asian exports.

"Gains in US technology shares helped confidence that Taiwan's electronics firms are likely to do well in the second half," said Maggie Chien, a fund manager at Capital Investment Management Co, which manages the equivalent of US$30 million.

Taiwan Semiconductor Manufacturing Co (台積電), which relied on the US for 74 percent of its sales in the first quarter, and United Microelectronics Corp (聯電), the world's No. 2 supplier of made-to-order computer chips, advanced for the first week in four.

Jiangxi Copper Co, China's biggest copper producer, jumped 18 percent. Zhejiang Expressway Co, the country's second-largest publicly traded toll-road operator, surged 16 percent.

Banks should keep lending to projects that aren't banned by the government, China Banking Regulatory Commission chairman Liu Mingkang (劉明康) said. China has clamped down on lending to industries such as steel, automobiles and real estate after an investment boom fueled gains in global commodity prices.

Earlier in the week, the People's Bank of China said media reports that the central bank's research department had proposed an interest rate increase to the government were "pure fabrication."

"Even to the extent that the US will raise interest rates 25 basis points this month, we don't think Hong Kong or China will follow at this stage," said David Chapman, who helps manage US$500 million at Towry Law Asia HK Ltd in Hong Kong.

In Taiwan, the adjustments by MSCI mean that the nation will account for 27 percent of the MSCI All Country Asia-Pacific excluding Japan Index, exceeding both South Korea and Hong Kong.

"The MSCI move is surely a positive factor that will help bring in more foreign funds in the mid to long-term," said Kevin Lin, who manages the equivalent of US$60 million as an asset manager at Shinkong Investment Trust Co (新光投信) in Taipei.

Cathay Financial Holding Co (國泰金控), Taiwan's largest financial group, climbed 6.8 percent this week, while Mega Financial Holding Co (兆豐金控), advanced 7.2 percent.

Other gainers in the region included mining stocks in Indonesia. PT Bumi Resources, the country's largest coal exporter, and PT Aneka Tambang, a state-controlled nickel and gold mining company, advanced on optimism prices for coal and the metals may continue to rise. They were the best-performers on the MSCI Asia-Pacific Index this week.

Berjaya Sports Toto Bhd tumbled 9.9 percent after Malaysia's second-largest lottery company by sales took over its parent's share of losses in a unit, prompting some analysts to downgrade their recommendations for the stock.

In Japan, UFJ Holdings Inc shares slumped after the country's banking regulator said it would inspect the lender's internal controls and business performance every three months after it evaded audits and failed to meet profit targets.
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