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Local sell-off expected to follow PRC equity slump

The local stock market is unlikely to escape the consequences of a slump in equities worldwide triggered by tumbling Chinese stocks two days ago, analysts said yesterday, predicting a selloff today.

"We expect the TAIEX to shed more than 100 points with foreign investors starting to sell today, preluding downward fluctuations over the next month," Jason Huang (黃崇恩), an assistant manager at UOB Investment Advisor (Taiwan) Ltd, said in a phone interview yesterday.

This does not herald the arrival of a global bear market, but a larger-scale and longer correction, he said.

UOB Investment accordingly revised down its forecast for the TAIEX to between 7,200 points and 7,400 points from 7,800 to 8,000 by the end of the second quarter.

It is the best strategy to reap profits and keep cash at hand against such a backdrop, Huang said.

The nation's market was closed yesterday for a public holiday. The TAIEX rose marginally by 0.02 percent to 7,901.96 on Tuesday.

Asian stocks yesterday continued to weaken for the second day, after China's equities plummeted on Tuesday on speculations about a possible crackdown on investments with borrowed funds, as well as the introduction of a capital gains levy that would end the bull market.

Foreign analysts, including Lehman Brothers and Credit Suisse, said they expected further downside risks in the near term on the Chinese markets, whose benchmarks have soared to record highs.

The impact would continue to spread to economically correlated markets in the region, they said.

"Taiwan cannot avoid the negative effect [today], but the impact would not last long," said Kevin Lee (李文宗), vice president of Shin Kong Investment Trust Co (新光投信).

As a laggard market, the TAIEX is still likely to hit 8,000 points and see support at around 7,500 before May, when the country's two major parties are to announce their candidates for the presidential election, Lee added.

Before the correction ends, UOB Investment said it favored defensive investment targets like cash-rich telecom plays and companies offering high cash dividends, such as members of the Formosa Plastics Group (台塑集團).

China-concept stocks, such as footwear maker Pou Chen Corp (寶成) and Uni-President Enterprises Corp (統一企業), could see downside pressure in the short run but are ideal long-term investment targets that can benefit from China's fast growing economy and appreciating currency, Lee said.

also see story:
Analysis: Share sell-off highlights PRC woes: analysts

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