Deteriorating turnover on the local bourse might add more pressure on Yuanta Financial Holding Co (元大金控) after the brokerage-centric financial group saw its share price plunge by 24.62 percent over the past three months, CIMB Securities Ltd said in a research note.
Due to rising macroeconomic uncertainties and a slowing domestic economy, the TAIEX has dropped 11 percent in the third quarter, with the average daily trading value declining 10 percent from the same period last year, CIMB Taipei-based analyst Nora Hou (侯乃鳳) said in a note on Thursday last week.
Compared with 24 percent annual growth in average daily turnover last year, trading momentum in the local bourse is expected to fall 4 percent this year and remain flat next year, Hou said.
Retail investors have been rapidly retreating from the local bourse, with their number dropping from about 10 million in the 1990s to about 3.8 million, she said.
“We maintain our bearish view on the brokerage sector, and lower Yuanta Financial’s earnings prospects for 2015 to 2017 based on lower turnover projections on the TAIEX,” she said.
As of last month, domestic individual investors accounted for 52.4 percent of trading value on the Taiwan Stock Exchange (TWSE), down from 68.8 percent in 2005 and 70.6 percent in 2006, Financial Supervisory Commission data showed.
Margin loans as a percentage of total market capitalization have also been trending down, reaching 0.5 percent compared with a five-year peak of 1.2 percent in June 2011, Hou said.
Margin trading balance, a gauge of risk appetite, reached NT$130.47 billion (US$3.92 billion) on Friday last week, about 36 percent lower than last year’s average of more than NT$200 billion, TWSE data showed.
Margin usage is expected to further decline by 16 percent this year and 9 percent next year, Hou said.
CIMB attributed listless trading on the local bourse to unfavorable tax policies that have driven away active traders, domestic institutional and retail investors, and the rising investor interest in other markets due to cross-border monetary easing.
Other negative factors include the Jan. 16 presidential and legislative elections, which might fuel uncertainty over cross-strait relations and regulatory liberalization, leading investors to stay on the sidelines, Hou said.
Financial Supervisory Commission Chairman William Tseng (曾銘宗) on Thursday last week told lawmakers on the legislature’s Finance Committee that plans to open the local bourse to Chinese retail investors would not be implemented before the end of this year, as a consensus is first needed across various government agencies responsible for cross-strait relations.
Local brokerages have estimated that the move would bring NT$18 billion in new investment and elevate the nation’s status as a regional financial management services hub.
Meanwhile, Hou said Yuanta Financial’s NT$56.55 billion acquisition of Ta Chong Bank (大眾銀行) would lead to at least three years of post-merger integration before meaningful synergies occur.
The acquisition is expected to acquire regulatory approval before the end of the first quarter next year.
“Although on a pro forma basis adding Ta Chong Bank will lead to a more balanced banking revenue mix, it will also reduce Yuanta Bank’s demand deposit exposure and grow its mortgage book, thus weighing on its margin expansion,” Hou said.
Ta Chong would also not help with Yuanta Financial’s overseas expansion, which remains essentially securities-focused, she said.
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