“We are committed to market expansion and competitiveness enhancement,” TWSE Chairman Chi Schive said Feb. 8. “The goal is to attract more companies with solid fundamentals to list here and to make the board even more appealing to investors by cutting trading costs.”
There were in total 741 listed companies plus 14 Taiwan Depositary Receipts on the exchange at the end of the year. Statistics from the TWSE showed a combined 36 companies made their debut on the main board in 2009, of which 10 came in the form of TDRs.
Stanley Chu, TWSE senior executive vice president, estimated that this year, the exchange will see 25 local initial public offerings and 10 to 20 new issues of TDRs this year.
A more exciting development could be the prospective primary presence by foreign firms. “If all goes smoothly, there could be three to five foreign IPOs this year,” Chu said. The first-ever introduction of a foreign primary offering on the island could materialize as soon as the second quarter.
“Our strategy is to entice large or reputable international firms to issue TDRs in Taiwan,” Chu said. For primary listings, the TWSE targets information communication technology companies as well as small and medium-sized enterprises.
The rapprochement between Taipei and Beijing since President Ma Ying-jeou took office in May 2008 is widely believed to be one of the major catalysts to expansion in the TWSE.
“Closer economic and financial relations across the strait will underscore the role of Taiwan as a bridge between the mainland and other nations interested in penetrating the mainland market,” said Yuanta Investment Consulting Senior Assistant Vice President Jacky Tam. The island has the advantage of sharing Chinese languages and cultures with the mainland.
In the middle of 2008, the Cabinet permitted listed companies to source funds raised in the island for investment in the mainland, while regulatory relaxations also allowed Hong Kong-traded companies to apply for TDR issues.
These developments are paying dividends as there are signs of increasing enthusiasm to trade in the domestic market. As of Feb. 12, there were 186 local applicants in the preparatory process for primary listings, plus 51 foreign companies seeking such a presence.
Himax Technologies Inc. and HCP Holdings Inc. from the Cayman Islands and the U.S.-based Integrated Memory Logic Ltd. have applied for primary trading on the local bourse, according to the TWSE. Meanwhile, four companies are awaiting approval for TDR issues.
“When we approached foreign investors last year, they were skeptical about the extent to which we would honor our policy relaxations,” Chu said.
“I visited them again last month, and they were convinced by the way we have eased rules such as those on capital flows,” Chu pointed out. The number of applications pursuing primary or secondary listings is evidence of the progress that has been made.
In terms of listing rules, foreign companies seeking IPOs here will be subject to local regulations concerning information disclosure, corporate governance and investor protection, among others.
Sean C. Chen, minister of the Cabinet-level Financial Supervisory Commission, also indicated the government will implement more measures to further prompt the development of financial markets. “We will study the feasibility of allowing securities companies to issue callable bull/bear contracts,” he said Feb. 10.
The FSC will also review adjustments on the current limits governing investment amounts, targets and stakes by mainland China investors when appropriate, Chen noted.
Executives of the TWSE are drawing a rosy picture for the main board thanks to market expansion, improving economic fundamentals and its own unique appeal.
“With Taiwan’s strong information communication technology industry, foreign investors interested in stocks in the ICT supply chain will find this market best meets their demand,” TWSE President Samuel J.S. Hsu said. ICT firms account for 54 percent of the exchange’s total listings.
Given the TWSE’s capability to supply a full line of ICT stocks, any major overseas investor interested in the sector would not want to miss out on the local bourse, according to Tam.
“This is an eye-catching market given its high price-to-earnings multiple, robust dividend yield and active turnover,” Hsu noted. Companies trading here in 2009 delivered NT$1 trillion (US$31.2 billion) in dividends on the back of their 2008 earnings.
Victor Lin, head of distribution at J.P. Morgan Securities (Taiwan) Ltd., gave a thumbs up to the exchange’s devotion to expansion: “It is the right direction for a bid to be an Asia Pacific fund-raising center,” Lin told “Taiwan Today” Feb. 9. “More offerings could forge opportunities to further boost market volume or turnover.”
With technology companies accounting for more than half of the listed pool, they usually enjoy a better P/E ratio than the broad market and therefore attract foreign investors having an appetite for ICT shares to the domestic market.
Adopted deregulations such as cuts in the inheritance tax and relaxation on mainland-bound investments by locally raised capital could also help beef up local presence, Lin added.
“The market’s strong performance last year, improved cross-strait relations and the high percentage of individual investors are also attractions of the local bourse,” he said. Individual investors account for around 70 percent of the transactions, highlighting a diversified investor portfolio.
Grand Cathay Investment Services Corp. Chairman Tu Jin-lung said increases in newcomers could inject more liquidity into the market, thanks to possible stakeholders’ support to their own stocks immediately after launch.
In the long run, the effect of more listings will depend on whether they can successfully attract fresh offshore funds into the island, Tu noted.
Tam believes the domestic market will continue its bullish run in the long term regardless of recent correction. “Recent price falls can be justified by the strong showing previously,” he explained.
The Taiwan Stock Exchange Capitalization Weighted Index closed 2009 at 8,188.11 points, skyrocketing 78.34 percent from the 4,591.22 registered at the end of 2008. A liquidity-driven rally lifted the TAIEX further to a recent closing high of 8,356.89 points Jan. 15 before profit taking dragged the benchmark index down to 7,212.87 points Feb. 6.
Tam cited the prospect of economic recovery, export growth and higher corporate profits as momentum-builders for the capital market. The Cabinet-level Directorate-General of Budget, Accounting and Statistics Feb. 22 forecast an advance of 4.72 percent in gross domestic product this year against a contraction of 1.87 percent last year.
All in all, “an expansion in the capital market would provide more options and consequently lure more inbound foreign investments,” Tam concluded. (THN)
Write to Adela Lin at adela2009@mail.gio.gov.tw