The sluggish sentiment shown by local investors is expected to linger, which will keep overseas investors from pumping funds into the nation's lackluster bourse, Morgan Stanley warned yesterday.
"Taiwan has seen a major reversal in fortune ? The reason is that local investors have been deserting the market," Morgan Stanley's chief Asian economist Andy Xie (謝國忠) said in a research note released after his two-week trip to meet with overseas investors in the US and the UK.
Investors appeared to have given up on the nation's market with unanimously bearish views and do not expect local sentiment to turn positive any time soon, Xie said.
They believed that they were better off waiting on the sidelines until the market became "too cheap to ignore," he said without giving a timeframe.
The TAIEX yesterday closed down 51.35 points, or 0.87 percent, at 5,860.39 with a turnover of NT$54.5 billion (US$1.619 billion).
After dumping shares worth over NT$50 billion in the last three months, foreign investors bought a net of NT$41.3 billion this month.
Most investors were actually quite bullish at the beginning of this year about the local bourse because it was trading at a low valuation and had good earnings prospects. Even though overseas investors injected large amount of funds into the country, the local market has dropped substantially, making Taiwan's bourse one of the worst- performing markets in the world, Morgan Stanley said.
Local retail investors' lack of confidence contributes to a shrinking daily turnover and weighs down foreign investors, causing them considerable losses, Joseph Yeh (葉震宙), managing director of BNP Paribas Securities Taiwan Co, told the Taipei Times last week.
Political disputes are another issue, Yeh said, predicting that the market may not become more robust until after the local government elections on Dec. 3.
The French securities house currently holds an underweight rating for the local bourse.
Despite the pessimism, several foreign brokerages have voiced bullish views about the market.
Merrill Lynch and Deutsche Securities said last week that it was time to do some bottom fishing, with a rebound expected to come by year's end, led by high-tech stocks.
For a mid-to-long-term perspective, foreign investors are worried about the nation's lag in industry upgrades, as Xie said that one glaring problem is that Taiwanese companies' business model for cost competition is the same as it was 10 years ago, while South Korea's companies have moved on to emphasize research and development as well as branding that appears more profitable.
Meanwhile, many investors believed that Taiwan would need to strike a deal on direct links to revive its fortunes, Xie said.
RSS