Broker sees stocks at the 12,000 mark

The TAIEX could climb to 12,000 points or even higher this year, according to foreign investment house Morgan Stanley Dean Witter (MSDW).

The fundamentals of Taiwan stocks have turned positive, according to a recent research report on Taiwan stocks by MSDW, and bullish factors include the rapidly increasing profitability of listed companies and ample liquidity in the market.

The investment house sees the TAIEX climbing by between 20 percent and 25 percent from its present level, for a target of between 12,000 and 12,500 points.

In addition, MSDW has also raised the average growth rate of earnings for listed companies to 42 percent from a previous estimate of 32 percent. Reasons for the hike include the fast growth of Taiwan's high technology industry, rapidly rising domestic demand and the positive effect of corporate restructuring.

MSDW average earnings growth at 25 percent for next year, which is unchanged from its prior estimate.

Several international securities groups have also issued similar predictions for the TAIEX recently.

ABN-AMRO Hong Kong earlier predicted the nation's main index could top 10,500 points this year, but then revised its expectations to 12,600. ABN-AMRO cited Taiwan's strong export growth and favorable interest rate and inflation environment for the change.

Credit Lyonnais in Hong Kong anticipates the TAIEX will hit the 11,595-point mark. The investment house expects average earnings growth will come in at 55 percent this year, led by a third year of expansion in the semiconductor industry.

Jardine Fleming in Hong Kong expects the TAIEX will reach 11,000 by year-end, but a company analyst said the prediction was likely a conservative one, and that the milestone was likely to be reached by the middle of the year.

While number of foreign investment houses have been releasing reports on their positive expectations for Taiwan stocks, many advisors are reluctant to provide any comment on the TAIEX's prospects or even the outlook for individual stocks.

This is especially so after the incident involving Peter Kurz, director of Merrill Lynch Taiwan Ltd, who has been asked to meet with officials from the Securities and Futures Commission (SFC, 證券會).

Kurz made some comments about Taiwan stocks and price performance in local media reports, which SFC officials say they want to "understand better."

SFC Lin Tzong-yeong (林宗勇) was quoted by local media yesterday as saying it was inappropriate for foreign investment houses to comment on the stock market or recommend any particular stocks when they are interviewed by the media. Lin said that type of information should only be given to clients and not the public.

But analysts with foreign investment houses bristled at the idea.

"It's ridiculous that while professional investment advisors cannot give any comment on the stock market, many amateur government officials have been giving all kinds of predictions on the market's outlook," said a senior executive of a foreign securities house, who declined to be identified.

The executive cited as the worst example the case of Lien Fang-yeu (連方瑀), the wife of vice president and KMT presidential candidate Lien Chan (連戰). Lien predicted that the TAIEX would top 15,000 if her husband wins the March election.

In addition, officials at the Central Bank of China (中央銀行) have estimated that more than US$20 billion in foreign funds will be flow into Taiwan stocks this year, a number far higher than the average estimates of foreign securities firms.

If government officials or their wives can speak freely about the TAIEX's prospects, why are investment professionals forbidden to disclose their opinions? the executive asked.

Another of a securities house, who also requested to remain anonymous, was equally critical of the SFC's stance that foreign analysts should keep quiet.

"The regulatory concept of these officials is out-of-date. What they really should be concerned about is whether anyone is manipulating stock prices with money and action," the executive said.

"In a free and open market, everyone should be able to speak freely, especially investment professionals. When the market is getting more information and there is transparency, it would be harder for anyone who attempts to manipulate stock prices or conduct securities fraud."