TAIEX closes at 16-week high

The TAIEX index climbed to a 16-week high after gains by the Chinese Nationalist Party (KMT) in Saturday's local government elections boosted hopes of better relations with China. Taiwan Semiconductor Manufacturing Co (TSMC,台積電) led the advance.

"The setback for the pro-independence ruling party should reduce worries over independence and ease political risks," said Victor Shih, who helps manage the equivalent of US$2.4 billion at HSBC Asset Management Taiwan in Taipei.

"The government may also adopt a more open policy toward China." he said.

The TAIEX rose 119.36, or 1.9 percent, to 6,348.31 at the 1:30pm close in Taipei, the highest since Aug. 12. Yesterday's gain was the biggest since a 2.1 percent advance on Nov. 9. About eight stocks gained for each that fell. Futures due this month climbed 2.3 percent to 6,363.

The outcome of the election, in which the KMT won a majority of local government seats, was a setback for President Chen Shui-bian (陳水扁) and is seen as a barometer for the 2008 presidential campaign, analysts said.

Recent polls predicted a poor performance for the governing Democratic Progressive Party (DPP).

TSMC, the world's largest supplier of made-to-order chips, gained NT$1.40, or 2.3 percent, to NT$62.

Compal Electronics (仁寶電腦), the world's second-largest notebook computer maker, added NT$1.05, or 3.5 percent, to NT$30.70. Acer Inc, the nation's third-largest computer company by market value, advanced NT$2.80, or 3.8 percent, to NT$76.80.

All three companies have plants in China.

The election "is a strong message to the government that people are not satisfied with its performance," said Andrew Yang (楊念祖), secretary-general of the Council for Advanced Policy Studies.

"President Chen should try to be more conciliatory with the opposition to deliver more effective, better linkages with China," he said.

Boosted by the election result, the New Taiwan dollar also rose yesterday, adding to its two-week gain on optimism a new government will end the troubled relationship with China and deal with allegations of corruption.

"The election result is what overseas investors were hoping for and the fund inflows will help the Taiwan dollar," said Gary Huang, a currency trader at Union Bank of Taiwan (聯邦銀行) in Taipei. "The result may also lead to more conciliatory policies toward China."

The NT dollar rose 0.1 percent to close at NT$33.493 against its US counterpart on turnover of US$798 million yesterday, according to Taipei Forex Inc. The currency may climb to NT$33.40 this week, Huang said.