Backed by a strong economic and technology cycle, Taiwan's stock market will soon rebound to its previous peak after the correction in the past two months amid the US subprime mortgage meltdown, a market watcher said yesterday.
"It [TAIEX] will revisit the prior high of 9,800 soon," said Lim Say Boon (林哲文), the chief investment strategist of Standard Chartered Bank Group's wealth management division.
"The Taiwanese market will be an outperformer compared with emerging markets next year," Lim said.
The benchmark index's previous highest point was 9,804 on July 26, according to the Taiwan Stock Exchange's tallies.
Underpinned by the peak fourth quarter for the manufacturing industry, Taiwan's economy is expected to improve, said Singapore-based Lim who was in Taipei yesterday for a press briefing.
He said he favored Taiwanese stocks over other emerging markets in the region because their valuations are relatively low.
The average price-to-earnings ratio of Taiwanese stocks is 12 to 13, compared to 13 to 14 for emerging markets, Lim said.
Average price-to-book ratio is 2.2 times of local equities, lower than those with three times of P/B ratio in emerging markets, he said.
The benchmark TAIEX lost 0.75 percent yesterday to close at 9,627.39 points on the Taiwan Stock Exchange, after the index hit a 10-week high at 9,700.07 on Wednesday.
The index dipped on the pullback of Wall Street overnight. It also closed lower due to profit-taking as a result of a 5.6 percent gain since Sept. 27, George Lai, an analyst at SinoPac Securities Co (
Three major institutional investors, including overseas fund managers, sold a net NT$4.85 billion (US$148.8 million) in Taiwanese shares yesterday, after they bought a net NT$46.84 billion between Monday and Wednesday, the stock exchange's data showed.
With the economic growth momentum, the central bank is expected to raise key interest rates by another 12.5 basis points by the end of the year, following the bank's 13th consecutive hike of 12.5 basis points last month, Lim said.
The NT dollar, meanwhile, will trade around NT$33 per US dollar by the end of this year, according to Lim's estimate. The local currency lost NT$0.026 to close at NT$32.599 yesterday in Taipei.
The UK bank is also positive about world equity markets and advised clients to invest in stocks, saying that economic fundamentals, valuations, yields and global liquidity all indicated a buy signal.
Lim said that volatility still exists as the problem of the US housing market remained unresolved.
The decline in US house prices and the rise in mortgage defaults are likely to worsen next year, Lim said. To solve the problem, the US needs to spend US$165 billion, which represents 1.2 percent of the country's GDP, he said, citing figures from BCA Research.
"The crisis in July and August was only the first warning shot? we should expect more and more spikes in volatility," he said.
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