Riding on a robust local equity market and favorable policy environment, brokerage and insurance firms are expected to drive an upturn of financial stocks in the second half of this year, analysts said.
"We believe financial stocks could be a good investment target in the last half," Alex Huang (黃國偉), assistant vice president of Mega Securities Co (兆豐證券), said in a telephone interview last week.
"We especially favor securities and insurance players," he said.
Huang attributed his positive view to a lack of new shocks, while old bearish factors, such as the diminishing fallout from the bad loans issue, have been priced in by investors.
Mega Securities expects insurance companies to gain considerable dividend income from their investment portfolios during the current quarter to beef up their profitability for the year.
Cathay Financial Holding Co (國泰金控), owner of the nation's biggest life insurer, is forecasted to earn as much as NT$8 billion (US$244 million) in cash dividends, contributing NT$0.87 to its earnings per share (EPS) this year, Mega Securities said.
Smaller rival Shin Kong Financial Holding Co (新光金控), parent company of the nation's second-biggest life insurer, could get NT$3 billion in cash dividend return, adding NT$0.69 to its EPS this year, Mega Securities estimated.
Meanwhile, the 10 percent rise in the overseas investment cap to 45 percent could increase investment returns from NT$4.4 billion to NT$8.8 billion for Cathay Financial, and NT$2.3 billion to NT$4.6 billion for Shin Kong Financial, depending on the interest rates spread with the US, the brokerage said.
Mega Securities gave a buy rating on the two firms with a target price of NT$86 for Cathay Financial and NT$45.8 for Shin Kong Financial.
The brokerage industry should see a bonanza this year, backed by the nation's rebounding equity market.
Several market watchers, including UBS Securities Ltd and Macquarie Securities, have anticipated that the TAIEX would hit the long-awaited 10,000 mark by the end of this year.
The TAIEX rose for five straight trading days to close at 9,188.31 last Friday, the highest in seven years.
The stock market -- powered by rising capital momentum, better-than-expected economic performance and the upcoming high season -- will help boost brokerage fee income, interest income from margin trading business and proprietary trading profits of securities houses, Mega Securities said.
The passage of the warrant taxation legislation would provide the sector with a combined tax refund of NT$3.1 billion, the company said.
The biggest beneficiary would be Fuhwa Financial Holding Co (
Mega Securities gave a target price of NT$23 for Fuhwa and NT$21 for Capital Securities.
Last Friday, Cathay Financial lost 0.38 percent to NT$79 and Shin Kong closed down 0.52 percent at NT$39.10, while Fuhwa gained 1.99 percent to NT$20.5 and Capital Securities rose by almost the 7 percent limit to NT$18.65.