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New law to boost local markets

"This is good news for sure from a long-term view."

Alex Huang, Mega Securities Corp vice assistant president

The passage of a law that allows long idle labor pension funds to invest into a diversity of financial instruments is a welcome bull factor that is expected to inject hundreds of billions in capital into the local stock market, analysts said.

"This is good news for sure from a long-term view," said Alex Huang (黃國偉), vice assistant president at Mega Securities Corp (兆豐證券), in a phone interview yesterday.

But the positive effect is not likely to help stimulate the currently bearish stock market, given that the capital will not be injected until about three to six months from now, Huang said.

The TAIEX fell for a second consecutive day to close down 7.9 points, or 0.1 percent, at 7670.77 on turnover of NT$116.59 billion(US 3.54 billion) yesterday amid the slump on global equity markets triggered by tumbling Chinese markets on Tuesday.

The Legislative Yuan yesterday approved legislation that establishes a labor pension fund supervisory body within the next three to six months, enabling the fund to invest in stocks, bonds and derivatives, both locally and overseas.

As of Feb. 9, the cumulative workers' pension funds under the new labor pension fund system exceeded NT$140.71 billion and were estimated to grow at NT$8 billion a month, according to data from the Council of Labor Affairs.

The council said yesterday that it expects the move to help boost the annual return of the funds to as high as 4 percent, up from the less than 2 percent currently obtained on time deposit.

The government currently allows four government funds, including the Postal Savings Fund (郵政儲金) and Labor Insurance Fund (勞保基金), to be invested in local equity markets, and they released a combined NT$89 billion to investment trust firms for outsourced trading services last year alone.

Once the funds are invested into the local stock market, major beneficiaries would mainly be large-cap stocks with a steady performance history, such as Taiwan Semiconductor Manufacturing Co (台積電), Formosa Plastics Group (台塑集團) subsidiaries and China Steel Corp (中鋼), Huang said.

The long-awaited approval from the legislature came as the American Chamber of Commerce in Taipei slammed the drawn-out process in the editorial of its February issue of Taiwan Business Topics, which was released yesterday.

"It should also be viewed as scandalous, however, that the lawmakers could sideline a bill with such direct and immediate impact on the public welfare due to partisan confrontation," said the article which was entitled An Overlooked Scandal.

The Securities Investment Trust and Consulting Association (投信投顧公會) said in a statement that the government should introduce talent and experience to local investment trust firms by requesting that international asset management companies bidding for outsourced trading business form partnerships with local rivals.

The government should also consider allowing workers to manage their own pension funds and give them the right to choose their own portfolios, the association said.
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