(Bloomberg) -- The landslide election victory for President Tsai Ing-wen has reinforced a winning run for Taiwan’s financial markets.
Traders on Monday had their first chance to react to the victory of Tsai’s Democratic Progressive Party -- which advocates for Taiwan’s formal independence. The Taiex stock benchmark closed at its highest level in more than three weeks with a 0.7% gain, while the local dollar gained 0.2% to close stronger than 30 per U.S. dollar for the first time since June 2018. The yield on 10-year government bonds was little changed at 0.6456%.
Foreign investors bought a net NT$10.7 billion ($359 million) of local stocks on Monday, the most in almost a month, according to exchange data.
Saturday’s result is helping extend what has been a positive period of investor sentiment toward Taiwan. Stocks have recently touched the highest levels in nearly three decades. Taiwan’s dollar strengthened for an eighth week last week in its longest winning streak since 2013 and government-bond yields remain near all-time lows.
“Investors will pay attention to beneficiary stocks in the short-term,” said Shelly Lee, chairman of Mega International Investment Services Co. “With the upcoming trade deal signing and expectations of Federal Reserve easing, the bullish trend will continue for Taiwan’s markets.”
Stocks in the biotech and medical care sector were among the best performers on Monday, with a measure of those shares rising as much as 1% before closing up 0.2%, on bets they will continue to benefit from supportive government policies. A gauge of tourism stocks was the worst performer, ending 2.6% lower, amid concern the election result will further chill cross-strait ties.
Taiwan Raises GDP Outlook as Investment Trumps Trade War
If recent history is any guide, Taiwan’s equities are poised to extend gains in the coming month. The benchmark Taiex index has climbed by an average of 7.4% in the 30 days after the results of the past six presidential elections, as investor concern about political risk fades. This week’s planned signing of an initial trade accord between China and the U.S. is also expected to give a boost.
“Taiwan stocks tend to rise after an election, as uncertainty is removed,” said Li Fang-kuo, chairman of President Capital Management. He sees the Taiex index hitting a record high by April, helped by continued inflows and a strong outlook for Taiwan’s technology sector.
Analysts have turned the most bullish on Taiwan stocks since 2015, according to data compiled by Bloomberg. Efforts by the government to lure further capital and incentivize local firms to invest at home have helped Taiwan stay resilient in the face of the U.S.-China trade war. This has helped encourage strong foreign inflows into its technology sector, which in turn have helped boost the Taiwan dollar. Taiwan Semiconductor Manufacturing Co., Taiwan’s largest stock, reports earnings later this week.
Money Pours Into Taiwan’s Markets as Election Nears
The local currency is seen rising to 29.5 per U.S. dollar by year-end, driven by the appeal of companies related to 5G and further repatriation of investment, according to Cliff Tan, head of global markets research for East Asia at MUFG Bank Ltd. Government bonds are expected to be boosted by limited supply under Tsai’s leadership, said Kevin Shih, a trader with Jih Sun Securities Co.
Profit-taking pressure may emerge nearer the Lunar New Year holiday, say analysts, while the outcome of the expected trade deal signing and recently heightened Middle East tensions will also be factors.
“But any pull-back would be a good entry point,” said President Capital Management’s Li.
(Update prices in the second paragraph, adds foreign inflows)
--With assistance from Miaojung Lin, Argin Chang and Ee Cheng Teh.
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