Taiwan's stock market, the world's worst performer since 2000, will rise as much as 11 percent in the next year, President Chen Shui-bian (陳水扁) predicted in an interview.
"I believe and expect that in the latter half of this year, the stock market will climb to 8,500 or even 9,000," Chen said on Thursday at the presidential office in Taipei.
The benchmark TAIEX index closed at 8,031.54 on Friday.
Chen, who also extended an invitation to Chinese President Hu Jintao (胡錦濤) to visit Taiwan, may be basing his prediction on expectations of a decrease in tension with China or measures to stimulate Taiwan's economy, analysts said.
"Since President Chen is so confident, he is likely to adopt some bullish policy related to cross-strait openings or some tax reform that can help boost the market," said Kevin Yang (楊師銘), chief investment officer at Paradigm Asset Management Co in Taipei, which oversees US$360 million in assets.
Since Chen came to power in 2000, the TAIEX index has been the worst performer of 90 major stock indices tracked by Bloomberg as investors preferred faster-growing economies. Chen's combative attitude toward China also contributed to the TAIEX's 18 percent slide in US dollar terms in the past seven years.
"Next year will be much better," the president said. "Before the 2008 presidential election, our stock market will have a great performance."
In the interview, Chen defended his government's handling of the economy and said Taiwan couldn't be compared with higher-growth places such as China and Hong Kong.
"Last year we had a pretty good economic performance -- a growth rate of 4.6 percent. Better than we expected," Chen said.
China's economy grew 10.7 percent last year and growth in Hong Kong was 6.8 percent.
Taiwan suffered from two curbs on higher growth, Chen said: domestic political turmoil, including months of anti-government demonstrations calling for the president to resign over corruption allegations, and China's efforts to "marginalize" Taiwan on the international stage.
Chen rejected calls for the government to loosen restrictions on Taiwanese companies investing in China.
To protect national security and prevent the "hollowing out" of local industry, Chen's government prohibits high-tech investments in China and has a cap on all other investments.
"The China market is huge and attractive," he said. "But we cannot afford to put our economic lifeline and all our resources in a single market. We cannot afford to become a subsidiary."
"The issue is not whether we should loosen the investment cap," he said. "The issue is that Taiwan's investment in China is too high. It's not normal."
Industrialists complain that the restrictions prevent Taiwan from cashing in on the China boom and are designed to appeal to the Democratic Progressive Party's (DPP) desire for de jure independence.
"The government needs to understand the real situation," said Jackson Hu (胡國強), CEO of United Microelectronics Corp (聯電), the world's second-largest maker of customized chips.
It has to "make a decision that is fair to the semiconductor companies in Taiwan, instead of making decisions based on ideological political thinking," he said.
Xu Bodong (徐博東), a policy adviser to the State Council of China's Taiwan Affairs Office, gives Chen a grade of "F" for management of the economy.
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