Analysts say TAIEX is healthy

Local stock market analysts yesterday were bullish on the outlook for the TAIEX in the second half of the year.

"The TAIEX may climb upward to hit 5,500 points in the third quarter and level out at 6,500 by year's end," said Shih Sheng-fa (施勝發), a vice president at Asia Securities Inc (亞洲證券).

Shih said that the IT-related industries in both the US and Taiwan have gradually picked up on a seasonal demand for electronic products, which signifies a stronger-than-expected economic recovery in the next six months.

He added that the TAIEX has completely transcended the negative impact brought by the US-led war in Iraq and the SARS epidemic over the last two months.

Following the euro's recent depreciation against the greenback, foreign investors further showed increased confidence in Asian stocks especially in this country and South Korea, by injecting, on average, US$140 million into the stock market every trading day since the beginning of the month, Shih added.

President Chen Shui-bian's (陳水扁) announcement Monday that the qualified foreign institutional investor (QFII) mechanism would be abolished and simplified application procedures also slightly boosted foreign investments.

According to Renee Chan (詹茹心), deputy manager in the marketing department at HSBC Asset Management Ltd (匯豐中華證券), foreign investors bought more shares than they sold on the TAIEX in the past three days, leaving a balance of NT$3.6 billion on Monday, NT$8.2 billion on Tuesday and NT$4.55 billion yesterday.

In Asian stock markets, foreign investors' buying activities are also increasing with a balance of US$29 billion in the region as of June this year, compared to a total of US$33 billion in 2001, she said.

"The TAIEX is sure to benefit more than other Asian bourses from American investors, who suffer domestically from low interest rates and prefer to inject money into the TAIEX since Taiwan is the US biggest overseas OEM partner," Chan said, adding that foreign funds account for over 10 percent of Taiwan's market capitalization.

"The TAIEX is about to heat up," she added.

According to the Securities and Futures Commission, overseas institutions including QFIIs had a combined US$49.23 billion invested in Taiwanese stocks as of last Friday.

Shih, however, said that only if the Morgan Stanley Capital Index (MSCI) further revises upward the weighted benchmark on the TAIEX next month, will Taiwan, with promising economic fundamentals, begin to experience the onset day of cash inflows by foreign investors.

Mike Chow (周道中), a manager with Yuanta Core Pacific Securities Corp (元大京華證券), shared some of Shih's views, but warned that since the local stock market is currently driven by capital flow, the TAIEX might not gain any ground if major US companies' soon-to-be-released profit reports fail to show rosy figures.

But Chou also assured of the upward momentum in the TAIEX especially with next year's presidential elections closing in.

Lauding the government's action to scrap the US$3 billion cap on each QFII investment, Chou said that it is more important for Taiwan to provide a deregulated investment environment, where foreign investors feel free to come and go, despite the fact that few QFIIs have exceeded the investment cap.