Stocks boom on signs of easier China investment

Staff Reporter

Stocks rallied to a 20-month high yesterday, as investors snatched up electronics shares amid signs indicating that the government will further relax the decades-long restrictions on China-bound investment.

Companies with a pressing need to build up their presence in China, such as top contract chipmaker Taiwan Semiconductor Manufacturing Corp (TSMC, 台積電) and chip-tester and packager Advanced Semiconductor Engineering Inc (日月光) had stronger gains than the benchmark TAIEX index.

The two companies have been calling the government to ease investment restrictions in China.

"An easing cross-strait trade policy will help Taiwanese firms, especially electronics companies, to lower costs by using cheaper labor [in China], and thereby safeguard their competitiveness," said Stevie Chou (周奇賢), an equities strategist with SinoPac Securities Corp (建華證券).

The benchmark TAIEX index jumped 95.43 points, or 1.49 percent, to close at 6,512.63 yesterday, marking its highest level since April 28 last year. Turnover expanded to NT$114.87 billion (US$3.45 billion) from NT$105.2 billion the previous day.

The planned policy changes will also help local companies increase their financial flexibility, Chou said. Under current government restrictions, some Taiwan companies choose to trade their shares in Hong Kong, he added.

Premier Frank Hsieh (謝長廷) yesterday said at a breakfast meeting with industrial representatives that the government planned to gradually relax the investment bans that cap Taiwanese companies' investments in China at 40 percent of their net value.

In addition to the policy change, foreign investors' aggressive buying also helped drive the stock market higher, said Henry Miao (苗台生), an analyst at Hua Nan Securities Investment Management Co (華南永昌投顧).

"Overseas fund managers are favoring Asian stocks and they are boosting their purchases," Miao said.

Foreign investors increased their net buying of local stocks to roughly NT$8 billion yesterday. United Microelectronics Corp (UMC, 聯電), the nation's No. 2 contract chipmaker, was their top pick yesterday.

UMC shares climbed 1.55 percent to NT$19.65.

Miao expected that foreign fund mangers will continue their buying and help boost the TAIEX to around 6,800 points by the end of the year.

Shares of Yaego Corp (國巨), the nation's largest maker of parts that control electricity in handsets and computers, shot up to NT$14.1, nearly a daily 7-percent limit, boosted by an acquisition report.

The Chinese-language online news service provider Yahoo Kimo Inc (雅虎奇摩) reported that the component maker Hon Hai Precision Industry Co (鴻海精密) planned to buy a 5-percent stake in Yaego.

Yaego denied the report in mid-session, but said it welcomed long-term investors.