Mon, Jan 09, 2006 - Page 10 News List

Analysts bullish on nation's stocks

ROSY OUTLOOK Experts predict the bourse will roar past the 7,000 mark, since it has done less well than other markets, and local and foreign money keeps pouring in

By Amber Chung  /  STAFF REPORTER

With Taiwan's stocks hitting 20-month highs recently, analysts are bullish on the local bourse, predicting the benchmark index will likely break the 7,000 point-level before the Lunar New Year on Jan. 29.

While there is some profit-taking pressure, the outlook will remain bullish and shares will climb higher, driven by abundant capital inflows and belated gains compared with international markets, they said.

"We believe that the TAIEX stands a good chance of hitting a five-year high by shooting past 7,000 points prior to the [Lunar] New Year [at the end of this month]," said George Hou (侯明甫), chief investment officer at JF Asset Management (Taiwan) Ltd.

Vigorous capital stimulus is expected to go on, with continuous inflows from both foreign institutional investors and local retail investors, Hou said.

The TAIEX closed at 6,548.34 at the end of last year, marking a 6.7-percent increase, with foreign net buying reaching a record high of NT$719.41 billion (US$21.9 billion). Foreign holdings accounted for a record 31.73 percent of total market value, according to Taiwan Stock Exchange (TSE) statistics.

Since the Taiwan market's price-earnings ratio (P/E ratio) remains relatively low, at about 12, compared to that of other major markets in the world, Hou predicted more upside potential ahead.

P/E ratios are commonly used by investors to measure how expensive a stock is relative to similar stocks. The lower the ratio, the more growth potential the company's stock has.

While President Chen Shui-bian (陳水扁) said in his New Year's speech that his administration would adjust trade policies toward China-bound investment -- shifting to an ``active management, effective opening'' policy from the previous ``active opening, effective management'' policy, his remarks did not ail the local stock exchange for long, with only a one-day drop in the benchmark TAIEX.

For the first week in January, the TAIEX rose 146.48 points or 2.24 percent to 6,694.82, with daily turnover exceeding an average of NT$150 billion each day, according to TSE statistics. Overseas investors bought a net NT$23.978 billion (US$744.7 million) last week, the TSE said.

The market is likely to see another high in the third quarter reflecting optimism about the following high season in the last quarter, after weathering a slow April to June period. That market could lag in the second quarter due to the release of last year's annual financial reports and possible selling pressure from high-tech employees who are subject to the taxation of their stock bonuses under the new alternative minimum tax scheme, Hou said.

Other foreign brokerages shared bullish views as well, with Deutsche Securities Asia Ltd saying last week that the liquidity in Taiwan's market has become more positive.

"We expect foreign interest for Taiwan equities to remain positive on the back of stronger earnings growth outlooks, driven by an extended technology cycle, positive fund flows and attractive valuation with reduced political risk premium," Krista Yue (余婉文), Deutsche Securities' head of research for Taiwan equities, said in a report dated Jan. 3.

A pickup in retail trading that accounted for an average 80 percent of daily turnover in the past few weeks, up from around 70 percent in the early months of last year, is expected to drag on to support the market's positive liquidity, Yue said.

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