TAIEX higher in see-saw week

Taiwan stocks took a breather last week after racking up nine weeks of gains in a bullish run that began in mid-December.

It was mostly a wishy-washy, see-saw week; the market indecisively rose and fell only to end 32.38 points higher from where it began.

After climbing 5.1 percent in the Jan. 31 to Feb. 11 period, the TAIEX finished Saturday at 10,161.05, up a meager 0.3 percent. The Over-the-Counter index closed at 282.48, up 0.9 percent.

Positive factors included the bullish prediction by the the Securities and Futures Commission (證券會) that roughly US$50 billion in net foreign inflows will pour into Taiwan this year. Previously, just US$20 billion had been expected.

Some of the negative factors included reports that the Central Bank of China (中央銀行) plans to hike the overnight interbank deposit rate 25 basis points to 4.85 after the March 18 presidential election.

But perhaps the biggest unknown still weighing on sentiment is the presidential election, and whether the market, which is primarily made up of retail investors, will panic.

The stock market took a dip during the 1996 election year after China lobbed missiles into waters off Taiwan's coast. Investors also briefly sold off shares last year after President Lee Teng-hui's (李登輝) interview with a reporter clarifying that Taiwan's relationship with China was state-to-state in nature.

"Whatever the result, the market will fall at first," said Naiwen Kerr, assistant vice president of Taiwan International Securities.

But if vice president and KMT candidate Lien Chan (連戰) loses, a recovery in share prices would take longer, Kerr said. And the correction would be especially protracted if DPP candidate Chen Shui-bian (陳水扁) wins.

Still, "I'm not worried about the post-election result," Kerr said, as Taiwan's political environment has little to do with the nation's economic fundamentals. Earnings are poised for stellar growth this year, especially at high-tech companies, and some analysts see the TAIEX hitting 12,000 by year end.

"If any disturbance results, jump in the market right away," he said. "Any time there's a political crisis -- such as a missile crisis -- it always creates a buying opportunity."

Dominic Grant, high-tech analyst at Primasia Securities, said that whether investors sell-off shares or hold steady won't be clear until a front runner emerges. Most polls show a close race between Lien, Chen and independent candidate James Soong (宋楚瑜).

"I do perhaps see a slowdown, perhaps some profit-taking," Grant said. "But on the otherside of that, a lot of foreign money is coming in."

Since the beginning of the year, foreign institutional investors have pumped a net NT$81.3 billion into local shares. That's compared to just NT$7.3 billion in the same period a year ago.

Grant also said that, regardless of any potential political fallout across the straits, Taiwan's manufacturers would continue to crank out the goods as the world's appetite for the nation's electronics doesn't show any sign of being satisfied. He cited the example of the 921 quake, when power outages here caused ripples in the global supply chain around the world.

"The global demand for high-tech is not going to stop because Taiwan has an election," Grant said.

Rising spot prices

Rising petrochemical material spot prices in recent weeks have given a slight boost to the shares of companies such as Formosa Chemical and Fiber (台化) and Grand Pacific Petrochemical (國喬).