HONG KONG: A recent surge of foreign funds into Taiwan could keep flowing in the coming months as investors snap up local stocks in the belief the market will outperform global peers amid its growing ties to mainland's resilient economy.

Taiwan's benchmark TAIEX has risen nearly 40 percent so far this year, making it the world's best-performing market open to foreign investors. The only better performers, both on the mainland, are closed to most overseas investment.

"Warmer ties with the mainland added to the market's attraction to foreign investors," said Andrew Deng, vice president at Taiwan International Securities Corp.

The expected signing of a financial services agreement with the mainland has been boosting local financial shares, which have gained about 43 percent since the beginning of March, compared with a 39 percent rise in the broader market.

Beijing's stimulus spending, aimed at boosting electronics and car sales, has also helped fuel recent rises in technology and auto shares, with investors expecting the mainland to launch similar packages to keep its economic growth at 8 percent this year.

In April, foreign institutional investors bought NT$103.7 billion ($3.1 billion) worth of local shares, their largest net monthly purchase since June 2007, when the net buying was at NT$185 billion.

On a broader basis, foreign fund net inflows reached $1.9 billion in March, a level not seen since March 2008. And, on April 30, foreign investors bought a net NT$32.99 billion worth of Taiwan stocks, the fifth-biggest daily foreign buying on record, after local stocks logged their biggest single-day gain in more than 18 years.

The foreign buying binge of Taiwan stocks over the past four weeks was the second-biggest among major Asian economies, after only South Korea's $2.5 billion and accounting for nearly a third of foreign fund purchases over the same period in Asia, excluding Japan, Nomura statistics showed.

The huge inflows marked a sharp turnaround that saw foreign money leaving Taiwan since last July as the global financial crisis unfolded.

"Warming cross-Straits ties will bring structural improvements to Taiwan's economy, especially the financial and domestic consumption sectors," said Wendy Kuo, chief investment officer at Yuanta Funds, whose fund size was the fourth-largest in Taiwan, according to the latest data.

Fidelity International held a similar view, and planned to raise up to NT$6 billion for investment in Taiwan for a Greater China fund, said associate director Ann Chang.

Analysts said technology shares and financial issues, the top weighted sub-indexes on TAIEX, will continue to be the most favorable sectors for overseas investors in coming months.

Taiwan share prices ended up 5.64 percent yesterday as investors showed optimism about closer business ties between the island and mainland, dealers said.

The weighted index rose 337.83 points to 6,330.40 on turnover of NT$164.55 billion ($4.93 billion).

Gainers led losers by 2,059 to 355 with 45 stocks unchanged.

The financial sector led gainers on expectations that Taiwan and the mainland will soon set up a mechanism to deal with the increasing exchanges between banks from the two sides, dealers said.

China Daily - Agencies

(HK Edition 05/05/2009 page16)