The Taiwan Monthly

Feb. 2020

Market & ETP Overview

Taiwan Stock Exchange 2019 year-end press conference

Over the past year, with the support of all market participants, the Taiwan Capitalization Weighted Stock Index in the securities market reached 12,000, and the market capitalization increased to NT$36.4 trillion. Together with the OTC and Emerging Stock Board, which is valued at about NT$3.9 trillion, the overall market capitalization of Taiwan's stock market has exceeded NT$40.3 trillion. The gratifying performance of the capital market is the result of collective joint effort, and I express my sincere gratitude to all market participants on behalf of the Taiwan Stock Exchange. I will take this opportunity to report the results of various initiatives and future work priorities and prospects of the Exchange.

 

1. Key Analysis of the TWSE Market

i. Stock price index 

The Taiwan Capitalization Weighted Stock Index hit a 30-year high last year in 2019. The Index closed the year at 11,997, an increase of 2,270 points or 23.3% over the previous year (2018), and it has outperformed many major international markets (see Table 1).

 

ii. Market capitalization 

The market capitalization of listed stocks by the end of last year was as high as NT$36.4 trillion, an increase of NT$7.1 trillion compared with the market capitalization of NT$29.3 trillion at the end of 2018. The domestic and foreign ownership increased by NT$4.3 trillion and NT$2.8 trillion, respectively, indicating that the growing value of Taiwan's capital market has significantly benefited investors and citizens alike. Taking one of the four major government funds, the domestic Labor Funds, as an example, as of the end of last November, the investment income was NT$412.7 billion. Their investment in domestic stocks is estimated to turn in a significant profit, indicating that workers also benefit from stock market prosperity.

 

iii. Trading value and turnover rate 

The average daily trading value of Taiwan stocks last year was about NT$120 billion, showing a decrease of 8% from NT$130.2 billion the year before, but it was still the second highest over the past 12 years. The turnover was 80% which was the second highest in the past five years. The daily trading value after last October has returned to NT$130 billion, showing a growing trend. The active transactions in the market have also improved the profitability of securities firms. From January to November, the overall net income after taxes of all securities firms was NT$37.3 billion, an increase of 30% over the same period of the previous year. It is estimated to break NT$40 billion again for the whole year, which would be a relatively high profit level after 2007. The securities market generated NT$101.2 billion in income from securities transaction tax for the national treasury the year before, and we estimate that the market would generate NT$90 billion in 2019. The increased amount of securities transaction tax has become an important source of funds for the government. Stock market prosperity can be shared with everyone (see Table 2).

 

iv. P/E ratio and dividend yield 

The exceptional growth of Taiwan stocks last year has pushed the price-earnings ratio to about 19.6 times, but compared with the other international markets, it has remained at a reasonable level. Even with stock prices rising, the average dividend yield remains in the 4% range as it has for the past five years, making it one of the best long-term stable investments in the world.

 

2. Summary of Listed Companies

i. Revenue and profit 

Due to the decline in global trade volume and the appreciation of the New Taiwan Dollar, as of the end of last year, there were 942 listed companies, with their overall revenue from January to November reaching NT$29.7 trillion, which was roughly the same as the previous year (see Table 3). The net income before taxes for the first three quarters last year was NT$1.85 trillion, a decrease of 12.7% over the same period of the previous year (see Table 4). As a result of the decline in international crude oil prices, the plastics industry revenue has dropped significantly. The panel industry has turned from profit to loss due to global overcapacity. It is estimated that the net income before tax for the whole year of last year can still reach NT2.3 trillion. The revenue and profit of listed companies in the past three years are higher than in previous years, and the overall operating conditions are solid.

 

ii. Dividends Payout

The listed companies which performed well also actively gave back to their shareholders. Last year, they issued a record high cash dividends of NT$1.44 trillion (1.32 trillion from TWSE listed and 0.12 trillion from TPEX listed, see Table 5), and have issued cash dividends of over NT$1 trillion for five consecutive years.

 

iii. Shifts of international capital 

In the face of intense competition in capital markets over the world, corporate governance has become an important factor in international institutional investors’ decision-making process, and Taiwan listed companies’ corporate governance performance has always been recognized internationally. The MSCI adjusted the inclusion ratio of China A-shares three times last year, from 5% to 20%. International funds have gradually flowed into the A-share market. However, the Taiwan stock market has been affected just slightly. The weight of Taiwan in the MSCI Emerging Market Index last November was 11.46%, a slight decrease from 11.63% in the same period of the previous year. With respect to the MSCI Emerging Markets ESG Leaders Index, Taiwan's weight grew 0.42%, from 16.23% of the previous year to 16.65% (see Table 6) last year, which is 5.19% higher than that of the MSCI Emerging Market Index. This reflects that the advances in corporate governance and sustainability established by the listed companies have become a main driver for global sustainable investing. Last year, Taiwan's stocks were attested by global investors and attracted NT$244.2 billion in foreign investment, the highest in the past three years.

 

iv. Stock price performance 

Last year, the weighted return of the 942 listed companies was 29.6%. The average return of the largest 50 listed companies was 46%, due to their technology advantages. Meanwhile, the other 892 listed companies increased 26.4% in stock price, which is quite similar to the overall return of listed companies, showing that investors overall benefited from the flourishing stock market.

 

v. IPO fundraising 

Due to the changes in the global politics and economies, major international exchanges have experienced a decline in IPOs (see Table 7). According to the statistics from the Financial Times, the number of IPOs around the world has fallen by an average of 20%. There were 19 newly listed companies in Taiwan last year, a drop of 10 from the previous year. As the listing procedures usually require two to three years of guidance, a single year IPO figure hardly demonstrates the trend. The two-year average of 24 listed companies is still higher than the level of the past five years. With respect to the IPO fundraising, it reached NT$23.32 billion last year, a 40% increase of over NT$16.73 billion of the year before and the highest among the most recent nine years (see Table 8).

 

3. Future Prospect and Directions 

Looking forward to 2020, with the US-China trade negotiations reaching the first-phase and a clearer Brexit direction, the overall global political and economic uncertainty has slightly eased. According to the International Monetary Fund (IMF) forecast, the global economy will grow by 3.4%, a slight increase from the 3% growth rate last year. In terms of the domestic economy, the government has introduced several measures to attract repatriation of overseas Taiwanese businesses. Last year, the total amount of investment attracted reached NT$840 billion. It is estimated that the investment this year will accelerate its growth and bring in more benefits to domestic manufacturing and employment. The Director-General of Budget, Accounting and Statistics expects that the overall economy this year will grow by 2.72%, which is more optimistic than last year. Based on the good foundation established last year, the TWSE will promote the following key initiatives in the coming year:

 

i. Full implementation of continuous trading 

Among major stock exchanges globally, the TWSE is the only stock exchange that hasn’t fully implemented continuous trading on all of its products. To make sure that the stock trading mechanism is consistent with the warrant and futures market, the TWSE has been preparing the implementation of continuous trading for a year with a launch date of March 23 this year, making our trading mechanism fully consistent with the global standard.

 

ii. Promote exit measures and plan for market making system 

In order to improve the overall quality of listed companies and protect investors' rights and interests, the newly added exit measures will be introduced on April 1 this year for companies with poor financial performance or material uncertainty which may cast significant doubt on their ability to continue as a going concern. The measures are to establish a clear deadline and procedures to supervise and help companies to actively improve themselves. For companies with good operating conditions but insufficient trading volume, a market maker system is being studied to enhance market liquidity. It is expected that the exit measures and market making system will make the overall stock market more robust.

 

iii. Plan for intraday trading of odd lot shares and expansion of price field 

In the current practice, the trading of odd lot shares during the after-hours is quite limited in terms of the time and the chance for closing. Therefore, it is expected that the intraday trading of odd lot shares will be introduced in the fourth quarter this year. The practice is to provide more opportunities for investors with less resources and attract younger investors to participate in the stock market, and thus achieving the purpose of inclusive finance. In response to the market development and trading practices, the price denomination field will be expanded to a 5-digit integer, allowing stocks under NT$100,000 to be traded more smoothly. The price denomination field expansion will be implemented at the same time as continuous trading.

 

iv. Expand IPO 

The IPO target for 2020 is 24 companies, which is challenging. In order to expand the IPO market, we have actively visited companies with potential to be listed and reinforced collaboration with intermediaries to guide the domestic well-performing companies to join the capital market. With respect to attracting overseas Taiwanese businesses, such as businesses included in the New Southbound Policy and businesses in the US, Japan and China, to go public in the TWSE. The successful overseas Taiwanese firms are given assistance in raising funds and expand their investment in Taiwan, further nurturing the domestic industrial cluster and supporting economic development.

 

v. Establish more comprehensive financial product lines 

To expand the listed product line, the TWSE introduced ETFs with focuses on ESG and technology as well as ETNs for the first time. This year, we will continue this development and help securities firms to issue leveraged and inverse ETNs to make the product line more complete. At the same time, a futures and warrants strategic index incorporating the futures and spot markets was compiled at the end of last year. This year, we will promote the application of cross-market index in financial commodities to construct more diverse and comprehensive financial product offerings.

 

Table 1: Major Stock Market Indices and Trading Value

Source: Bloomberg, Reuters and the World Federation of Exchanges

Note: Trading value figures of the Exchanges other than TWSE are from January to November and compared on a year-on-year basis.

 

Table 2: Highlights of the TWSE Market

Source: TWSE

Table 3: Total Sales Revenue of Listed Companies on TWSE

Source: TWSE

Table 4: Total Net Income of Listed Companies on TWSE

Source: TWSE

Table 5: Total Dividend Payout of Listed Companies on TWSE

Source: TWSE

Table 6: MSCI Emerging Markets ESG Leaders Index – Country Weights

Source: MSCI fact sheet (2019/11/29)

Table 7: Comparison of Major Stock Exchange IPO listings

Source: World Federation of Exchanges

Note 1: Exchanges other than the TWSE are based on the latest data released by the WFE, and the figures are compared on a year-on-year basis.

Note 2: From January to November 2019, the number of IPOs on the main board of Shanghai Stock Exchange (SSE) was 48, decreased 12.7% over the same period in 2018. Its overall IPO growth was mainly driven by the SSE STAR Market launched in July 2019. As of Nov. 2019, there were 56 IPOs on SSE STAR Market.

 

Table 8: Fund Raising Activities of Listed Companies on TWSE

Source: TWSE

 

(The above data is preliminary figures. Please refer to the official statistics released by each unit.) 

 

 For further information, please contact Mr. Lin at 1241@twse.com.tw.