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Legislature's move on China trade pact boosts financial sector shares

TAIPEI, Taiwan -- The local financial sector got a boost Tuesday as investors were pleased with the apparent progress of the Cross-Strait Trade in Services Agreement through the Legislative Yuan a day earlier, dealers said.

Investors picked up financial stocks soon after the local market opened in the wake of a move by lawmakers from the majority Kuomintang (KMT), who labeled the trade pact an “executive order,” thereby bypassing procedures that could be blocked by opposition parties.

Under the Act Governing the Legislative Yuan's Power, legislative committees should complete a review of an executive order within three months. If the review is not completed in that time, the agreement is considered reviewed and will go into effect automatically.

Buying in the financial sector accelerated until the end of the session on hopes that the trade agreement will boost business opportunities for local financial institutions, lending support to the broader market throughout the trading session, dealers said.

The financial sub-index closed up 0.74 percent at 1,000.20 points on the Taiwan Stock Exchange, where the weighted index ended up 0.37 percent at 8,731.94 points.

BOA Merrill Lynch Issues Six Buys on Upbeat Prospect

Amid optimism toward the local financial sector's bottom line, Bank of America Merrill Lynch has issued a “buy” on shares of CTBC Financial Holding Co. (中信金控), Mega Financial Holding Co. (兆豐金控), Fubon Financial Holding Co. (富邦金控), Yuanta Financial Holding Co. (元大金控), SinoPac Financial Holdings Co. (永豐金控) and China Life Insurance Co (中國人壽).

Among the six stocks, Yuanta Financial rose 4.33 percent to close at NT$15.65 (US$0.52), while Mega Financial gained 1.30 percent to end at NT$23.45.

In a research note, Merrill Lynch said Taiwan's banks are expected to benefit from the continued relaxation of market regulations by the government, in particular in the wealth management business.

As of the end of February, Chinese yuan-denominated deposits at the local banking sector hit a record high of 247 billion yuan (US$40.2 billion) at the end of February.

Merrill Lynch said the increase in yuan deposits at the local banks partly came from a fund due to Taiwan's expanding exports to China.

In addition, as Bank of China's Taipei branch, which serves as the clearing bank for yuan transactions in Taiwan, offers 4-4.5 percent interest rates to its counterpart in Taiwan for yuan deposits, the amount of yuan deposits increased rapidly in Taiwan, which has improved banks' profitability.

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