The US investment firm Carlyle’s bid for a local hi-tech firm has sent positive vibes throughout the local stock market for a number of reasons….

The local benchmark index capped 10 consecutive days of gains by hitting a six-year high yesterday, spurred by the Carlyle Group’s bid for Advanced Semiconductor Engineering (ASE), the world’s largest chip-testing and packaging company.

The TAIEX rose 70.79 points, or 0.95 percent, to 7,498.15 on turnover of NT$127.17 billion (US$3.89 billion), marking its highest close since Sept. 6, 2000.

Foreign investors bought a net NT$16.02 billion of shares yesterday, boosting net purchases to NT$88.57 billion since the beginning of this month.

“International acquisition activities are an inevitable trend,” Ann Chang (張慈恩), vice president of JF Asset Management Taiwan, said in a telephone interview yesterday.

Taiwanese stocks that boast healthy fundamentals are relatively cheaper than those in neighboring markets like Hong Kong, making them attractive to foreign investors and private equity funds like the Carlyle Group, Chang said.

Hong Kong has some pretty interesting problems and has been struggling since it became part of China to establish a high-tech sector — handicapped by a start up rate that is less than half the global start-up rate.

Why are these companies being acquired?

“The Carlyle bid for ASE is likely to trigger a series of takeovers by foreign investors in Taiwan’s high-tech sector, using the island as a springboard into the huge mainland [China] market,” an analyst with a regional brokerage said

….

Citing institutional investor research, local media reported yesterday that 30 local companies, including the world’s second-largest contract chip maker, United Microelectronics Corp, along with Acer Inc and Chunghwa Picture Tubes, had been targeted by suitors.

The idea is that if local companies are sold to foreign investors, they are no longer local, and thus, are free to ignore the restrictions on local investment in China. The DPP needs to relent on this one. Taiwan’s businesses are moving to China no matter what, and will either ignore or circumvent the laws, as necessary.

Eager to maintain its edge over rivals in an industry led by Amkor Technology Inc, ASE was expected to use the foreign takeover — if it went through — to bypass the government’s restrictions on investments in China, dealers said.

Under the nation’s current policy on China-bound investments, local companies are only allowed to invest up to 40 percent of their net worth on the mainland.

Critics have called for a relaxation of this regulation which ties the hands of local businesses, while their rivals from around the world face no such restrictions.

“Above all, ASE has come up with a solution for many other Taiwanese companies that have also been weighed down by the government’s restrictions against their expanding further in China,” said an analyst with a leading foreign securities house who asked not to be named.

If you are scratching your head trying to remember, Carlyle became famous in 2001 when it was linked in conspiracy theory to the airline stock short selling prior to 9/11. One of their paid “consultants” is George Bush Senior, and they are a major defense contractor in the US.