Source: Youth Opportunities Hub
Recently, we have observed that foreign institutional fund flows are shifting towards financial stocks. We believe reasons for the shift include: 1.) Financial stocks have entered the ex-dividend peak season. The current average dividend yield is around 4.5%, which is more attractive than the 2%-3% of the Taiwan stock market; 2.) Financial holding companies in Taiwan keep exceeding earnings expectations. While fundamental growth was limited due to the ongoing pandemic, investment profits are robust, and profits are especially high for insurance-based and securities-based financial holding companies; 3.) When the shipping and technology stocks started to fluctuate recently, investors have turned towards more secured financial stocks; 4.) The market still holds certain expectations for the interest rates rising in the future.
Foreign shareholder structure of financial stocks has been completed shuffled in the past decade
So which FINIs exactly were buying financial stocks in the past? According to our latest research, the current top five FINI financial stock shareholders are The Vanguard Group, BlackRock Fund Advisors, Norges Bank Investment Management (Norway), GIC Asset Management, and BlackRock Fund Advisors (U.K.) Ltd., with market values of 4.241 billion, 3.438 billion, 2.215 billion, 1.787 billion, and 705 million US dollars respectively. Interestingly, we have observed that for the past ten years, the shareholder structure of financial stocks has been completely shuffled. Ten years ago, Taiwan's financial stocks used to be dominated by active strategic investment funds and private equity, but now it is focused on index funds and government funds that are not focused on specific goals.
Source: QIC database, as of June 2021
We have observed that the Norges Bank, the third largest foreign shareholder in Taiwan financial stocks, has increased its financial stock market value from US$395 million to US$2.215 billion in the past ten years, a 4.6 times growth; GIC’s holdings have also increased by 5 times from US$294 million to US$1.787 billion. Among the top 15 foreign shareholders, except for Morgan Stanley's concentrated investment in E.Sun Financial Holding, the others are all diversified in financial stocks. Norges Bank Investment Management has invested almost in all Taiwan’s financial stocks, while GIC has diversified holdings in ten financial stocks. We believe that the changes in foreign ownership of financial stocks over the past decade reflected the different investment cultures and strategies of foreign investors. We also observed that many foreign investors are still more interested in other industries in Taiwan, thus their holdings are still much higher than financial stocks.
China Development Financial Holding, King’s Town Bank, and First Financial Holding saw the biggest increase in its FINI holdings in the past decade
As of the end of June, the top three stocks receiving the most investments from FINIs are CTBC Financial Holdings, E.SUN Financial Holdings, and Yuanta Financial Holdings, with FINI holdings at 37.82%, 34.96%, and 32.39% respectively. The three financial stocks with the largest increase in foreign shareholding in the past decade are China Development Financial, King’s Town Bank, and First Financial Holding, which increased by 9.14, 8.94, and 7.39 percentage points respectively; as of the end of June, foreign shareholding within these three financial holdings are 24.24% in China Development Financial, 15.42% in King’s Town Bank, and 23.36% in First Financial Holdings.
In the past ten years, the total market value of Taiwan’s financial industry has increased from 2.3 trillion NTD to 5.48 trillion NTD, an increase of approximately 1.38 times. The total market value of foreign investment in Taiwan's financial stocks increased from 530.7 billion to 1.38 trillion, an increase of 1.6 times, which was greater than the increase in the total market value of the financial industry.
Foreign investment in financial stocks mainly considers company profits, future development strategies, and shareholder returns. China Development Financial saw the largest increase in foreign holdings amongst Taiwan's financial stocks in the past ten years. The crucial elements were their future business strategy and the impact after acquiring China Life Insurance. These elements helped China Development Financial to differentiate themselves from other financial holding companies.
On the other hand, King’s Town Bank’s increase in foreign shareholding was due to its outstanding profitability, the company’s business strategy, sustaining loan growth while maintain high asset quality. First Financial Holding, with its state-ownership background, was able to become the third highest increase in foreign shareholding mainly because it continued to increase the proportion of cash dividends over the past ten years, and its current valuation remains attractive.
Summary
Taiwan’s financial holding companies have been able to deliver stable profit growth as the economy has remained relatively good shape while asset quality continues to be sound, hence becoming a good long-term investment target to many. However, financial stocks still account for a relatively low proportion of foreign investment in Taiwan, thus we believe that as long as Taiwan financial stocks can come up with convincing business objectives, strategies and dividend policies, foreign ownership should still have considerable room for growth.
QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies for many years. Through the unique investors database and our knowledge in industries, we pair up appropriate investors with corporates, assist companies and investors to achieve effective two-way communication and thus realize the purpose of enhancing shareholder value. QIC is exempted from MIFID II and has many years of experiences in corporate access services. We plan, schedule and execute tailor-made roadshows and targeted investor events for high-quality corporate clients. If you are interested in learning more about our services, you are welcome to contact us.
Contact: Yvonne Huang yvonnehuang@qtumic.com