Thu, Jul 01, 2004 - Page 11 News List

TAIEX spurs rosy forecast

HIGH SEASON As the electronics industry looks forward to its fat months, investment capital should flow back into the market due to weighting changes

By Amber Chung  /  STAFF REPORTER

Analysts yesterday painted a rosy outlook for the local bourse in the year's second half, mainly bolstered by the electronics industry's upcoming high season and the backflow of foreign capital encouraged by the market's weighting revision earlier this month.

However, a likely US interest rate increase and China's power shortage problem could still pose threats to the local stock market, experts said.

"We expect the local bourse to return to its peak in the second half of this year, as long as no surprises happen to disturb the global economy during the period," Eric Chou (周榮正), who manages NT$4 billion worth of funds with Prudential Financial Securities Investment Trust Enterprise in Taiwan, told report-ers.

The peak is likely to occur in September or October, Chou said, as investors by then could identify and avoid problem companies based on their financial reports for the year's first half, which will come out next month.

Chou predicted that the TAIEX will certainly pass the 6,000 level by the early autumn, but declined to elaborate on the projection.

Chou attributed this rosy outlook to the electronics industry's coming high season.

The weighting change by Morgan Stanley Capital International is expected to encourage foreign investors who had earlier dumped Taiwan shares to reinvest, the analyst said.

Merrill Lynch also predicted earlier this month that as much as US$31 billion in international active and semi-active funds and US$4 billion in passive tracker funds would pour into the TAIEX before the two-phase weighting change is completed in May next year.

Nevertheless, some uncertainties could cloud the market's bright future, Chou said; in particular, a rise of the US prime interest rate by more than 0.5 percentage points would have a bearish impact.

The impact of China's worsening summer power shortages and a potential interest rate increase driven by a growing consumer price index is yet to determined, he said.

China's central bank governor, Zhou Xiaochuan (周小川), said earlier this month that the bank would consider adjusting interest rates upward if the CPI growth rate surpasses 5 percent.

China's CPI growth rate in May reached 4.4 percent from a year ago, according to figures released last month by the National Bureau of Statistics.

Prudential Financial said TAIEX objectives investors could set their sights on included personal and notebook computer companies as well as the liquid crystal display panel industry.

Intel Corp's slash in prices of the first-generation Centrino central processing units by up to 35 percent and strong corporate replacement demands are expected to spur PC-related companies, Prudential said.

The construction and banking industries could benefit from a rebound of the nation's real estate market as well, Chou said.

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