Oil and China weigh on TAIEX

Analysts they remained cautious about the nation's bourses in the third quarter, citing the debilitating effect of rocketing crude oil prices and the impact of China's deteriorating power supply situation on businesses with cross-strait operations.

However, the TAIEX may rebound at the end of the current quarter, driven by the approaching peak electronics sales season from October to December, and the fading influence of other bearish factors, they said.

"We are still conservative [about the performance of local stock market] in the third quarter," said Jones Wang (王源錦), a deputy manager with ABN-AMRO Asset Management in Taipei.

The market situation may not be clear until the semi-annual financial reports of all the listed companies come out by the end of this month, Wang said.

Meanwhile, skyrocketing crude oil prices remain a powerful influence on the bourse, he added.

Contracts crude oil for delivery in September on the New York Mercantile Exchange saw a record high trading price in the past 21 years at US$44.77 per barrel in the mid-session last Friday.

However, another analyst said due to political conditions, soaring oil prices could start to fall in the near future.

"As the US administration may not want to make a mess of the economy before the presidential election in November, there is a likelihood that oil prices will weaken before then," said Calvin Chen (陳程坤) a manager at Yuanta Core Pacific Capital Management (元大京華投顧).

There is also a serious concern that China's insufficient power supplies could, in turn, affect China-based Taiwanese companies, which is a greater worry to local markets, Chen said.

According to figures released by China's electricity supervisory commission, that country will suffer a power shortage of between 25 million kilowatts and 30 million kilowatts in the third quarter.

This problem could keep haunting the stock market in the current quarter, Chen said.

The TAIEX, which experienced this year's highest level to date on March 5 at 7,135 points, experienced its lowest point this year mid-session last Thursday, at 5,255 points.

The market value of listed companies shrank to NT$12.03 trillion as of last Friday, a decrease of NT$2.88 trillion since the presidential election, according to figures by Taiwan Stock Exchange Corporation.

However, Chen predicted that the bourse should be able to stay above 5,000 points, and would start to recover at the end of the current quarter or the beginning of the next quarter, driven by the traditional high sales in the season and a potential return of capital from overseas investors, after the US Federal Reserve Bank's minimal interest rate hike of only 0.25 percentage points.

High-tech that consume less oil would see less of an impact brought by the oil price hikes, and thus will be able to reflect their profits in their share prices, said Chang Ching-i (張靜宜), investment management vice president with Prudential Financial Securities Investment Trust Enterprise's Taiwan branch.

High-tech with price to earnings ratios that have been underestimated are expected to rebound in the peak sales season during the fourth quarter, Chang said.

Agreeing Chang, Wang said that raw materials companies, such as plastics chemicals firms, and parts manufacturers for mobile phones and laptops should be considered for investors' portfolios.