The head of Merrill Lynch in Taiwan predicted that the nation's economic growth will contract 2.3 percent this year, with no sign of recovery until the first half of next year.
"According to our research department, Taiwan's GDP growth rate for 2001 is likely to be negative 2.3 percent, and we expect the earliest recovery for the economy will be in the first half of next year," said Spencer White (白懷碩), director of corporate & institutional clients, Merrill Lynch Taiwan Ltd (美林投顧), in an interview with the Taipei Times yesterday.
He also said that the economic climate would not change until business warmed up in the US and Europe.
"The current economic recession in Taiwan is closely tied to prevailing conditions throughout the global economy. Taiwan is unlikely to be able to get out of this recession without support from key trading blocks such as the US and Europe," White said.
As for future prospects of the TAIEX, White addressed several factors that are likely to influence the performance of the equity market over the course of the next six months.
"Three factors are important before year-end. The first is the rate of global growth and the influence that it will have on Taiwan's external trade. The second is the result of the general election on Dec. 1. And the last one is Taiwan's anticipated entry into WTO around the end of this year or the beginning of next year. All three factors could produce considerable uncertainty for the investors. Therefore, I think it's more likely that the TAIEX will consolidate in a narrow range," White said.
White voiced support for the recent resolution by the economic development advisory conference regarding the relaxation of regulations on qualified foreign institutional investors (QFIIs).
"Normally it takes four to six weeks for QFIIs to get approval from the central bank [when applying to invest in Taiwan's stock market]. Sometimes it's even longer" without any apparent reason for the delay," White said.
"What the QFIIs really want is that there should a window [in the central bank] to give reasons for a delay or any other problem during the application procedure," he said.
White also commented on tax policy proposals discussed at the economic conference.
"Lowering the tax rate on the land value increment tax would help the real-estate market by providing added liquidity," White said.
But he does not fully support the suspension of the securities transaction tax for the purpose of reviving the stock market.
"The securities transaction tax is an important source of tax revenue for the government. Suspending the tax would not provide incentives for investors to further invest in the local stock market. Since investors are looking for capital gains, a mere 0.3 percent savings from eliminating the tax is unlikely to provide much incentive," he said.
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