Tourism stocks a new bellwether

Hotel and airline stocks, among the nation's best performers this quarter, may offer a bellwether for the broader market as improved ties with China boost investor confidence.

Gains for companies including Formosa International Hotels Corp (晶華), the nation's largest hotel owner, and Leofoo Development Co (六福開發), an operator of hotels and theme parks, helped the TAIEX Tourism Index rise 32 percent. The gain is the biggest among 19 industry groups on the TAIEX Index.

China Airlines (華航) and Eva Airways Corp (長榮航空), the two largest local carriers, also surpassed the TAIEX's 3.1 percent advance for the quarter. The index's move compares with a 1.4 percent loss for Morgan Stanley Capital International's Asia Pacific Index.

Optimism that China and Taiwan will ease restrictions on tourism to Taiwan may help the TAIEX maintain a lead on the regional index after trailing for the past three years.

"The rally in tourism-related stocks reflects the anticipation of fundamental changes in cross-strait relations," said George Hou, who oversees the equivalent of US$3.7 billion as president of JF Asset Management Ltd in Taipei.

This shift is "vital in restoring investor confidence and will have a positive impact on the performance of Taiwan stocks," he said.

Formosa International Hotels has risen 27 percent this quarter and Leofoo Development has climbed 42 percent. China Airlines, the nation's biggest airline, has added 5.5 percent. EVA Airways, the No.2 carrier, has gained 11 percent.

The government said last month that it may allow Chinese tourists to visit in supervised groups. Current rules permit only businessmen and people with family members in Taiwan to travel here.

"Better ties with the mainland will mean more tourists coming and leaving more money behind," said Isaho Nakasho, a fund manager who oversees US$40 million in Asian equities at Fuji Investment Management Co in Tokyo.