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Merrill Lynch Ltd optimistic of local bourse correction

Merrill Lynch Taiwan Ltd forecasts a correction in the local bourse in the second quarter, which would provide investors an ideal entry point, the brokerage said yesterday.

The US securities house is holding a three-day investment forum ending today in Taipei to bring together 140 companies and 500 institutional investors.

"We are cautiously optimistic about the local market backed by stable though unimpressive economic growth, a 15 percent rise in corporate earnings and decent dividend policy," Merrill Lynch Taiwan's president Sophia Cheng (程淑芬) told reporters.

The odds of collapse are minimal, with fluctuation within 1,000 points in the benchmark index this year, Cheng said, predicting a correction in the TAIEX to no lower than 7,300 points from next month to June.

Cheng attributed the downtrend to optimism in the business world that the pan-blue camp would win next year's presidential election and the prospect of increased cross-strait ties, such as direct flights.

The potential selling pressure from employees' stock bonuses to be levied in taxes in May, and the relatively high reserve costs and poor net interest margin of the banking sector are all downsides, she said.

Investors can take the chance to look for quality investment targets, the analyst said.

Merrill Lynch said it was neutral about downstream hardware stocks expected to consolidate, such as laptop companies.

A correction in share prices of integrated circuit design houses is expected, given the dilution risk caused by bonus shares and rallying share prices. Lingering bad consumer debts could continue to haunt some banks, Merrill Lynch said.

Investment picks are Acer Inc, Asustek Computer Inc (華碩電腦), High Tech Computer Corp (宏達電), MediaTek Inc (聯發科技), RealTek Semiconductor Corp (瑞昱半導體), Fubon Financial Holding Co (富邦金控) and SinoPac Holdings (永豐金控), it said.
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