Presidential election should boost stocks

Taiwan's stocks may rise to a record after the nation's presidential election in March next year on improved ties with China and an end to political gridlock, according to BNP Paribas SA (法國巴黎銀行).

Taiwan's benchmark (TAIEX) stock index should surpass its peak of 12,682 reached on February 1990 "regardless of which party wins," Johnny Chen (陳政隆), head of research at BNP Paribas Securities (Taiwan) Co, wrote in a report dated yesterday. The index's high is 45 percent above yesterday's close.

Democratic Progressive Party (DPP) presidential candidate Frank Hsieh (謝長廷) favors closer ties with China than the current president, while maintaining Taiwan as an independent country. The Chinese Nationalist Party (KMT), which sees reunification as an ultimate goal, has used its position as the biggest party in parliament to block government policies and delay budgets.

"We expect the political paralysis of the past seven years to end after the elections," Chen wrote in the report.

The current situation in which the main opposition party controls the parliament is unlikely to continue, he said.

If the DPP wins the election without getting a majority of seats, it will "have no choice but to form a coalition government" with the KMT to end the gridlock, he wrote.

The KMT ruled until their defeat by the DPP in 2000. President Chen Shui-bian (陳水扁), who isn't allowed to run for a third term, has been removing symbols of the opposition party's five-decade reign, including statues of KMT founder Chiang Kai-shek (蔣介石).

"A better domestic political environment will facilitate the passage of key fiscal policies to stem further capital outflow and possibly attract the return of Taiwanese capital overseas," BNP Paribas' Chen wrote.

Capital outflows in the past 15 years are estimated at between US$500 billion and US$800 billion, according to the BNP Paribas report. China is the nation's biggest trading partner and investment destination.

"Taiwan's geographic proximity with China allowed the island to benefit from the mainland's growth," said Phil Chen (陳憲志), who manages US$154 million at Grand Cathay Securities Investment Trust Co (大華投信) in Taipei.

The TAIEX, which gained 2.5 percent to 8,942.93 yesterday, has risen 14 percent this year, compared with a 15 percent gain by the Morgan Stanley Capital International Asia-Pacific Index.

The government, seeking to boost economic growth ahead of the election, is encouraging developers to convert farmland for use as factories and housing.

The government has also announced measures to increase salaries and reconstruct urban housing.

"We like Taiwan, especially Taiwan domestic plays, due to supportive government policies to revitalize the domestic economy," said Diane Lin, Sydney-based head of Asian equities at Perennial Investment Partners, which oversees US$20 billion in assets.