Taiwan stocks yesterday posted the biggest gain in more than 2 years, driving the benchmark index up by the most in Asia, after the government said it would let its National Stabilization Fund buy equities to support domestic markets.
Hon Hai Precision Industry Co (鴻海精密) and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) climbed more than 4 percent, pacing gains by the nation’s largest companies. Cathay Financial Holding Co (國泰金控) surged 7 percent after the Financial Supervisory Commission (FSC) said it would let Chinese banks buy stakes in local banks and financial holding companies starting on Jan. 2.
“Stocks with high cash yields or low price-to-earnings ratios would be the major beneficiaries” from stabilization fund purchases, Tu Jin-lung (杜金龍), chairman at Taipei-based Grand Cathay Investment Services Corp (大華投顧), said by telephone. “News that the government will allow Chinese banks to buy stakes in local counterparts fueled interest in potential investment targets.”
The TAIEX rose 4.6 percent to 6,966.48 at the close, the biggest gain since May 2009. The government is taking action to curb a slump that has dragged the stock gauge down by 22 percent this year. The index is set for its biggest annual decline since 2008, the year the credit crisis intensified and Lehman Brothers Holdings Inc collapsed.
Hon Hai, the world’s largest contract manufacturer of electronics, advanced 5.8 percent to NT$82.5, while TSMC, the world’s largest contract manufacturer of chips, rose 4.4 percent to NT$76. The stock trades at 14.8 times estimated earnings, compared with a four-year average of 16.2.
The government will let its fund buy stocks when necessary, Vice Premier Sean Chen (陳?) said in a statement on Tuesday.
Economic and stock fundamentals remain sound, he said.
The NT$500 billion (US$16.5 billion) stabilization fund was created to help protect Taiwan’s markets from “significant occurrences at home and abroad,” according to the finance ministry’s Web site.
The government bought stocks on Aug. 8 and Aug. 9 through four funds it controls to stem a six-day slump.
Philip Yang (楊永明), a Cabinet spokesman, declined at the time to comment on whether the government had used the National Stabilization Fund.
Cathay Financial surged 7 percent to NT$29.95, the biggest jump since Oct. 31, 2008. Fubon Financial Holding Co (富邦金控) soared 7 percent to NT$29.95, the largest rally since May 6, 2009.
The Taiwan Stock Exchange’s Financial and Insurance Industry Index advanced 6.7 percent, the most since May 4, 2009.
A single Chinese investor can take up to a 5 percent stake in a Taiwanese bank and total investment is capped at 10 percent, according to a statement yesterday from the financial regulator.
Chinese investors need FSC approval to appoint a board director or to sell their stakes, it said.