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TAIEX shrugs off looming tax cloud

The stock market yesterday withstood the potential impact of the government's plan to levy capital-gains tax on institutional investors' stocks, and continued rising for a second day, backed by a constant inflow of overseas capital.

Overseas investors kept up purchases, acquiring a net NT$9.37 billion (US$302 million) worth of Taiwanese shares yesterday ahead of Morgan Stanley Capital International's (MSCI) re-weighting of its Taiwan Index at the end of this month.

Foreign investors have bought a net NT$31.06 billion worth of Taiwanese stocks this week.

The TAIEX nudged up by 40.46 points, or 0.68 percent, to close at 5,967.96 on a turnover of NT$80.27 billion. Nevertheless, decliners outnumbered gainers 438 to 409, with 167 stocks remaining unchanged, according to the Taiwan Stock Exchange.

"MSCI's re-weighting has started bringing the bullish effect into full play by attracting increasing capital inflow [into the local bourse]," said Wu Pei-wei (吳佩偉), a fund manager who oversees US$22 million worth of funds with ABN AMRO Asset Management in Taipei.

Wu said that the Ministry of Finance's plan to include institutional investors' capital-gains tax from their stock investments in the government's minimum-tax proposal did not seem to bother foreign investors much.

"We tend not to be pessimistic about the plan," the fund manager said.

Wu said the chance that the tax proposal will be implemented is slim, as President Chen Shui-bian's (陳水扁) administration may not want to depress the market amid a slowing economy.

Investors should set their sights on electronics stocks, especially key component makers in the integrated-circuit design industry and the thin-film-transistor-panel sector, Wu said.

MSCI's removal of the Limited Investability Factor that had been applied to Taiwan's bourse was to be undertaken in two stages.

The first revision occurred on Nov. 30 last year, when MSCI changed the weighting of its Taiwan Index from 55 percent to 75 percent.

The final revision will be made on May 31, when the weighting of the Taiwan Index will be removed so that the benchmark will fully reflect the listed prices of Taiwan's securities.

Another analyst said that the MSCI factor is expected to bolster the performance of the local bourse this month.

"We expect as much as US$5 billion in capital to be injected into [Taiwan's] stock market this month," said Joseph Yeh (葉震宙), managing director and general manager of BNP Paribas Securities Taiwan Co.

Nonetheless, JP Morgan Chase Bank yesterday reduced its index target for the TAIEX to 7,500 points, from the target of 10,000 points it set last year.

The US investment bank cited dramatically slowing earnings growth in the year to date, an underperforming equity market since 2002 and continuing low exposure of domestic investors to equities.
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