Led by construction shares, the local benchmark stock index closed yesterday at a new one-month high, as investors welcomed an end to market uncertainty surrounding a much awaited Cabinet reshuffle.
The TAIEX closed 1.24 percent higher at 7,313.99 points, after hitting an intraday high of 7,350 in the morning session. The index has risen 59.3 percent since the beginning of the year, compared with an increase of about 29 percent on the MSCI Asia-Pacific index over the same period.
The TAIEX’s gains were led by construction shares as the appointment of Taoyuan County Commissioner and KMT Vice Chairman Eric Chu (朱立倫) as the new vice premier encouraged domestic investors to move cash off the sidelines, SinoPac Securities Corp (永豐金證券) said in an investment note yesterday.
The brokerage said news of the reshuffle added momentum to the market, which was already driven by the better-than-expected exports performance last month and the latest strong corporate sales reports. On Monday, the Ministry of Finance said exports rebounded to a 10-month high of US$19.01 billion last month, although the figure was still 24.6 percent lower from a year earlier.
Premier Liu Chao-shiuan (劉兆玄) unexpectedly announced on Monday afternoon that President Ma Ying-jeou (馬英九) had accepted his resignation to shoulder responsibility over the government’s belated response to the devastation caused by Typhoon Morakot last month.
Liu and his Cabinet are scheduled to resign en masse tomorrow, while Chinese Nationalist Party (KMT) Secretary-General and Vice Chairman Wu Den-yih (吳敦義) will take over as premier.
A Cabinet reshuffle is not likely to have a major impact on financial markets, as the central bank governor and Financial Supervisory Commission chairperson will not be affected by the Cabinet reshuffle, analysts said.
Winson Wang (王榮旭), an analyst at Marbo Securities Consultant Co (萬寶證券投顧), said domestic and foreign investors appeared optimistic about the Cabinet reshuffle in the wake of the eight-day stock rally.
In particular, “the appointment of Chu as vice premier helped boost stocks linked to public works plans to strengthen Taoyuan’s infrastructure,” he said.
Turnover in Taipei trading yesterday was NT$158.57 billion, with foreign institutional investors buying a net NT$19.65 billion (US$600 million) in shares, Taiwan Stock Exchange data showed.
“[Foreign investors’] purchases were the highest since May 6,” Wang said by telephone. “In the absence of confidence, foreign fund managers would have adopted a wait-and-see tactic instead.”
Domestic institutional investors bought a net of NT$593 million, while domestic investment trusts sold a net NT$224 million in shares, the exchange’s data showed.
Analysts said the local stock market would likely enter a moderate correction in the short term after rallying for eight days, but the reshuffle was unlikely to cause major changes in the Ma Ying-jeou (馬英九) administration’s China-friendly policies.
“While the Cabinet reshuffle could introduce some uncertainties in the local political environment in the near term, we do not expect a major change in policy directions, particularly on cross-strait policies,” Goldman Sachs said in a client note yesterday.
Morgan Stanley also wrote in its latest investment note: “We expect little change in the direction of government policies, which are determined by President Ma.”
Minister of Economic Affairs Yiin Chii-ming (尹啟銘) yesterday did not say whether the government shakeup would have an impact on the signing of an economic cooperation framework agreement (ECFA) with China. He confirmed, however, that discussions on the matter had begun in April.
A ministry official who requested anonymity, however, told the Taipei Times that “the signing of an ECFA may not take place before the end of this year, which isn’t necessarily a failure. We can simply sign it next year.”
The appointment of Wu and Chu as premier and vice premier could increase “efficiency of execution” and ameliorate communication between the executive and the ruling party, said Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Taiwan Inc.
“As a legislator for two [sic, three] terms, Wu should have a strong understanding of how to maintain a better relationship with the legislators,” Cheng wrote in a client note.
“Wu will continue to carry out President Ma’s campaign promises to run Taiwan as a regional asset management center and logistics center. Improving economic ties with China will continue to be one of the KMT’s priority policies, but the pace may slow because of the Dalai Lama’s visit [earlier this month],” he said.
ADDITIONAL REPORTING BY ELIZABETH TCHII
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