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Morgan Stanley remains upbeat on nation's stocks

Morgan Stanley reiterated its overweight rating on Taiwan's stock market yesterday, bolstered by global economic growth and a possible pause in monetary tightening.

"We remain overweight on the global growth proxies of Taiwan, [South] Korea and Singapore," Morgan Stanley's Asia-Pacific strategist Malcolm Wood said in his latest report released yesterday.

The outlook for global growth could be rosier though, as economies in the Middle East, the Commonwealth of Independent States and sub-Saharan Africa could grow at about twice the 2.8 percent pace of industrialized nations, driven by a commodities boom not seen since 1971, Wood said.

This could further strengthen the already strong global growth and add extra stimulus to economic and earnings growth among Asian countries, where exports to the above-mentioned economies have more than doubled in the past four years, he wrote.

Meanwhile, Morgan Stanley expects central banks to step back for the moment alongside the US Federal Reserve, which is likely to halt its tightening cycle following expected interest-rate hikes next month.

The firm referred to the Fed's recent minutes, saying, "most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy."

The combined factors may allow the rally in Asia-Pacific markets to continue, Wood said.

Taiwan's market strengthened for the second day yesterday, with the benchmark index rising marginally by 0.04 percent to 7,096.04 on turnover of NT$117.88 billion (US$3.68 billion).

Foreign investors bought a net of NT$3.56 billion worth of stocks yesterday, on top of net buying worth NT$138.17 billion since the beginning of this month, according to figures from the Taiwan Stock Exchange.

The momentum could persist, because foreign investors are expected to continue to inject funds into the local stock exchange on bullishness over defrosting cross-strait relations as well as the better-than-expected first-quarter performances of high-tech firms, said Eric Chou (周榮正), a fund manager who oversees a NT$3.3 billion portfolio at Prudential Financial Securities Investment Trust Enterprise.

Local institutional investors, who sold a net NT$1.88 billion yesterday, however may remain conservative due to political uncertainties, and wait to see if President Chen Shui-bian (陳水扁) makes any positive comments about further liberalization on the anniversary of his inauguration next month, Chou said.

The upside may be limited, with the TAIEX expected to peak at 7,300 points at most before the end of this quarter, he said.

Despite the seemingly positive sentiment, Macquarie Securities said in a research note yesterday that the market rally was now overdone after hitting a two-year high of 7,160.74 points last week, and suggested that investors look to take profits.

"We have maintained our call for the TAIEX to be range-bound at 5,500 points to 7,000 points this year, and we are now at the top of that range," Macquarie said, adding that it remained negative on Taiwan's technology sector and had little faith that improved sentiment among domestic investors would last.
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