Bucking the main bourse’s bearish sentiment, financial stocks moved up yesterday after the legislature on Wednesday approved a measure to reinstate a capital gains tax on securities investments that helped resolve a four-month cloud hanging over the sector, a foreign brokerage said yesterday.
Credit Suisse said in a note that the financial sector had been hit hardest by the uncertainty over the capital gains tax and therefore it is now most likely to be relieved by the passage of a less drastic scheme.
However, the overall market sentiment will remain weighed down by possible revisions of major corporate earnings in the near term under the sluggish macroeconomic conditions, Credit Suisse said.
The financial and insurance sub-index on the main bourse, which reflects the general share performance in the financial sector, rose 0.56 percent yesterday, compared with a decline of 0.12 percent on the benchmark TAIEX, Taiwan Stock Exchange data showed.
“We maintain our tactical overweight on the financial sector as we head into cross-strait talks in the next one-two months while we wait for the tech sector to digest earnings revisions and reset growth expectation in the next few weeks,” Credit Suisse analysts Chung Hsu (許忠維) and Michelle Chou (周盈秀) wrote in the note.
The eighth round of economy-centric cross-strait talks — between Straits Exchange Foundation (SEF) Chairman Chiang Pin-kung (江丙坤) and Association for Relations Across the Taiwan Straits (ARATS) Chairman Chen Yunlin (陳雲林) — is expected to take place on Aug. 9 in Taipei, local media reported.
However, the Mainland Affairs Council yesterday did not confirm the reports at a regular briefing, saying the exact date and place are still under discussions between the SEF and ARATS, Radio Taiwan International reported, citing the council’s Deputy Minister Liu Te-shun (劉德勳).
Still, the financial sector has attracted renewed buying in past sessions on expectations that Taiwan and China would conclude negotiations and sign an agreement to set up a currency settlement mechanism as well as an investment protection agreement.
Meanwhile, domestic financial institutions have shown stable asset and credit quality. Based on the latest data compiled by the Financial Supervisory Commission, the bad-loan ratio of 38 domestic lenders dropped to 0.58 percent at the end of May, from 0.62 percent at the end of April, while the overall coverage ratio gained 7.67 percentage points to reach 185.36 percent, from 177.69 percent the month earlier.
Credit Suisse's top picks among local financial stocks include China Life Insurance Co (中國人壽), SinoPac Financial Holdings Co (永豐金控), E. Sun Financial Holding Co (玉山金控) and Mega Financial Holding Co (兆豐金控).
Shares in China Life rose 2.15 percent yesterday, SinoPac Financial moved up 2.13 percent, while E.Sun Financial remained unchanged and Mega Financial fell 1.07 percent.