Fri, Jul 01, 2016 - Page 11 News List

Commission set to change stock and ETF weightings

INFLUX EXPECTED:The proposed 13 to 17 percent cut in risk weightings of holdings of life insurers could lead to an additional NT$100 billion for the local bourse

By Ted Chen  /  Staff reporter

The Financial Supervisory Commission (FSC) on Wednesday said that it is to announce a reassessed risk weighting for holdings of stocks and exchange traded funds (ETFs) held by life insurers, with the aim of encouraging carriers to divert holdings to Taiwan.

The commission is considering reducing the risk weightings of stocks and ETFs from 0.2411 to a range between 0.2 and 0.21, or a reduction of between 13 and 17 percent.

Reducing the weighting is aimed at easing pressure on insurers that are compelled to sell off stocks and ETFs to meet regulators’ risk-based capital ratio requirements, as downturns and wild swings become more frequent amid rising volatility and uncertainties in global markets.

Yuanta Securities Investment Consulting Co (元大投顧) said the commission’s move would lead to an influx of funds to the local equities markets, benefiting stocks with large market capitalization and high dividend yields, as well as those trading off a low base.

Yuanta analyst Peggy Shih (施姵帆) on Wednesday said in a note that an additional NT$100 billion (US$3.1 billion) in life insurance controlled-funds would flow into the local bourse, higher than an estimate of between NT$60 billion and NT$70 billion given by FSC Insurance Bureau Deputy Director-General Shih Chiung-hwa (施瓊華).

“We expect life insurers to invest more in stocks with high dividends due to the low interest-rate environment,” Peggy Shih said in the note.

Top high-dividend picks include leading telecoms and petrochemicals firms with dividend yields of about 5 percent, such as Chunghwa Telecom Co (中華電信), Taiwan Mobile Co (台灣大哥大) and Formosa Plastics Corp (台灣塑膠), she said.

Financial stocks are also likely to see increased holdings by life insurers, as they have been trading off a low base at about 0.9 times of their price-to-book values, a range last seen during the European debt crisis, she said, adding that Cathay Financial Holding Co (國泰金控) and Fubon Financial Holding Co (富邦金控) are among Yuanta’s top financial sector picks, given their 5 percent dividend yield.

Life insurers are also likely to increase holdings of shares in which they have already established a large position, such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), Yuanta said.

The commission is also mulling establishing a different risk weighting for ETFs for life insurers, which is measured by the same metrics as local shares.

The commission said that ETFs are a viable option, as being a basket of underlying stocks, they are inherently more diversified against market upheavals than single stocks.

ETFs also help curb wide swings in share prices, as participating market makers act to help regulate prices through redemption and creation mechanisms.

ETFs account for 10 percent of turnover on the Taiwan Stock Exchange, commission data showed.

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