Mon, Dec 27, 2004 - Page 10 News List

TAIEX will rise: experts

ABUNDANT LIQUIDITY Now that Taiwan's brutal election year is over, cross-strait ties may calm and the nation's main bourse may begin to climb, experts say

By Lisa Wang  /  STAFF REPORTER

Taiwan's stock market may rebound in line with the world's major markets next year, helped by abundant liquidity and subdued political uncertainty, industry watchers said.

Political instability resulting from the presidential and legislative elections prevented the benchmark TAIEX from taking a cue from the rise in the Dow Jones Industrial Average and most Asian markets, said Eric Lai (賴葉臣), a portfolio manager who oversees a NT$1.5 billion fund for Fidelity Investments Taiwan.

Lai, however, downplayed the impact of China's plan to enact an anti-secession bill to provide a "legal" basis for military action against Taiwan, saying that Beijing's move will only have a short-term shock on the local market.

In the long run, cross-strait ties will ease after the legislative elections when tensions mounted to a new high, he said.

"With those political factors on the wane, the TAIEX is expected to catch up to its global counterparts in 2005, helped by a liquidity-driven gain," Lai said in a report released last week.

A fresh batch of around NT$240 billion in overseas funds will flow in after Morgan Stanley Capital International Inc raises Taiwan's limited investment factor to 100 percent in May in a two-phase hike plan, Lai said.

After the hike, Taiwan's stock market will have the heaviest weighting -- about 20.2 percent -- on Morgan Stanley's emerging market index, a greater representation than South Korea.

Apart from that, a strengthening New Taiwan dollar will be pivotal in snaring more overseas funds from the US, or the Europe, Lai added.

Lee Fang-kuo (黎方國), head of SinoPac Securities Corp's (建華證券) research division, agreed with Lai, saying that flush liquidity will be the primary factor driving the local market.

Lee expects the capital inflow to push the TAIEX to 6,800 points in May, and the bourse could hit a peak of between 5,200 and 6,800 points next year, Lee predicted.

The TAIEX inched up 0.36 percent to close at 6,019.42 points, with turnover of NT$47.35 billion, on Friday.

Taking advantage of the liquidity-driven gains, investors are advised to add financial shares to their stock portfolios as the government steps up its financial reform efforts by pushing for more mergers in the sector, Lee said.

Raw material stocks such as cement and steel will also be good targets for investment, as they are expected to reap big profits while Chinese demand remains strong, in spite of Beijing's measures to curb its over-heating economy, he said.

But, Lee warned, there will also be uncertainties ahead. Rising oil prices, a weakening global economy and the US Federal Reserve's possible hike in key interest rates will all pose a threat to Taiwan's stock markets, he said.

Oil prices are expected to remain at about US$40 per barrel on average next year, while global economic growth is expected to slow to 4 percent from 4.8 percent this year, according to SinoPac Securities' projection.

The Fed is widely expected to keep a stable pace toward raising key interest rates to 3.5 percent by the end of next year to curb inflation, SinoPac said.

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