Taiwan’s stocks posted the biggest gain in more than 2 years, driving the benchmark index up by the most in Asia, after the government said it will let its National Stabilization Fund buy equities to support domestic markets.
Hon Hai Precision Industry Co. and Taiwan Semiconductor Manufacturing Co. climbed more than 4 percent, pacing gains by the island’s largest companies. Cathay Financial Holding Co. surged 7 percent after the Financial Supervisory Commission said it will let Chinese banks buy stakes in local banks and financial holding companies starting 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, chairman at Taipei-based Grand Cathay Investment Services Corp., said by phone. “News that the government will allow Chinese banks to buy stakes in local counterparts fueled interest in potential investment targets.”
The Taiex Index rose 4.6 percent to 6,966.48 at the close in Taipei, 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 Taiex 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$82.50, while Taiwan Semiconductor, the world’s largest contract manufacturer of chips, rose 4.4 percent to NT$76.00. 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 said in a statement yesterday. Taiwan’s economic and stock fundamentals remain sound, he said.
The NT$500 billion ($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 website.
The government bought stocks on Aug. 8 and Aug. 9 through four funds it controls to stem a six-day slump. Philip Yang, 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. soared 7 percent to NT$29.95, the largest rally since May 6, 2009. The TWSE Financial and Insurance Industry Index advanced 6.7 percent, the most since May 4, 2009.
A single Chinese investor can take up to a five 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. The rules, announced two years ago, would take effect starting Jan. 2.