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Pre-election uncertainty

Political uncertainty surrounding the presidential election is keeping foreign capital away from the local stock market, a UK-based fund manager in Taipei said yesterday.

"We've made good money from Taiwan, but we tend to be profit-taking [before the election] due to market uncertainty," Kevin Scott, international executive director at Jupiter Asset Management said at a press briefing.

Jupiter, which manages US$41 billion for retail and institutional investors in the UK and Europe, is one of the UK's largest fund managers.

Calling Taiwan "one of the strongest markets in Asia," Scott said the fund manager would probably return after the presidential election, once the uncertainties became clear.

In a further show of confidence in the nation's fund market, Jupiter is planning to start selling five funds, to be distributed by Taiwan Securities Co (台証證券), on April 2 in Taipei.

"As one of Asia's largest financial markets, Taiwan represents an exciting long-term opportunity for Jupiter," Scott said.

The five funds include Jupiter Ecology, Jupiter Global Managed and Jupiter Emerging European Opportunities Fund, which boast a five-year compounded annual growth rate of between 24.62 percent and 43.57 percent and a fund size of between US$370 billion and US$1.6 billion.

Foreign institutional investors have sold a net NT$2.77 billion in Taiwanese shares so far this month, after they purchased a net NT$63.89 billion in the first two months of this year, the Taiwan Stock Exchange's figures showed.

The benchmark TAIEX rose 0.64 percent to 8,435.30 points yesterday on the back of a net purchase of NT$13.09 billion by foreign investors, the exchange's figures showed.

Analysts say investors are taking a cautious approach in the run-up to the presidential election on March 22. But downward pressure from profit-taking in the short term is not expected to affect the nation's good fundamentals, Morgan Stanley economist Sharon Lam (林琰) said in a research note on Monday.

"As the election approaches, we believe investors will be haunted by the memory of getting burnt in the false pre-election rally four years ago," Lam wrote. "As long as the March 22 election provides no surprise and sustains people's hopes for a change in growth and cross-strait relationships, we believe confidence and hence capital will come back to Taiwan."

The Morgan Stanley report, titled A Tiger is Awakening, said Taiwan's economy was expected to grow 4.8 percent this year from last year and that concerns that the nation's exports would be negatively affected by the slowing US economy were overdone.

"A tiger is awakening and any sell-off should serve as a good entry point into the market," Hong Kong-based Lam wrote.

Bernard Liu (劉至昱), research head of JPMorgan Securities (Taiwan) Ltd, also said he was upbeat about the TAIEX despite US recession fears.

Liu said a Chinese Nationalist Party (KMT) win in the presidential election could help drive a market re-rating on Taiwan this year. He expected a 23 percent potential upside to the TAIEX by the end of this year, an equity strategy report issued on Monday said.

"We believe the Taiwan market had already been discounting a [US] recession, and hence continue to find the risk-reward attractive," Liu wrote. "Our December 2008 index target remains 10,500."

As for the re-rating next year and beyond, JPMorgan said it would depend on the accomplishments of the new government.
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