UBS Securities Ltd's Taiwan branch said yesterday that it expected the benchmark TAIEX to reach 8,700 points this year, the most optimistic forecast by far among those made by foreign market watchers.
The Swiss brokerage's revision marked its second upward adjustment within a month, after it raised its target to 7,390 points from 7,139 points last month.
UBS Securities appeared the most bullish with the highest index target for this year, followed by CLSA Ltd's 8,477 points and Goldman Sachs' 8,200 points.
The TAIEX edged up 0.51 percent to 7361.45 on turnover of NT$137.56 billion (US$4.37 billion) yesterday.
Foreign and local investors collectively bought a net NT$4.31 billion of stocks yesterday, helping the index recover from losses during the past two sessions.
Foreign investors have been strong buyers and have bought US$10 billion of Taiwanese equities this year to date in addition to US$24 billion last year, largely because of factors like MSCI's rating adjustments and attractive valuations, Ken Chen (陳安), head of research at UBS Securities Taiwan, said in his latest Taiwan market strategy report released yesterday.
"We expect retail investors to invest more aggressively in Taiwan," driven by the depreciation of the US dollar, which is likely to encourage investors to convert their deposits back into local currency and pump the funds into the local market, Chen said in the report.
The stabilizing political environment and cross-strait relations are also a significant catalyst, as both the ruling and opposition parties seem to be moving toward further cross-strait liberalization, which would give confidence to long-term investors in Taiwan, Chen said.
Other driving forces include the healthy earnings outlook, with forecasted earnings growth of 21 percent for the market this year and 21 percent next year, as well as a reasonable valuation in the local market, he added.
The benchmark TAIEX has gained 2.3 percent this month but further consolidation looks likely in the near term, analysts said.
Assets have been sizzling and bolstering the recent rally in the local market, as investors are buying into the likelihood of a further opening-up to China through direct links, which is expected to benefit the nation's real estate market, CLSA Ltd's equity strategist Christopher Wood said yesterday.
CLSA prefers asset class and banking stocks that could benefit significantly from possible liberalization, as banks could enjoy a competitive edge over foreign rivals by serving their existing Taiwanese clients based in China, if they are allowed to expand across the Strait within the next two years, Wood said in an interview.
"Taiwan will be the best performing market in Asia" if Taiwan and China can strike a political settlement, Wood said, predicting the TAIEX would exceed 12,000 points in such a situation.
The brokerage said it liked an array of property-rich stocks like Cathay Financial Holding Co (