Taiwanese and South Korean stocks may end the year with the biggest gains among Asian markets once inventory levels fall and concerns of refinancing ease, Macquarie Group Ltd said.
Shares in the two markets will probably start to rebound next quarter as companies resume production after clearing excess supply, said Tim Rocks, the brokerage’s Hong Kong-based Asia equity strategist.
They will fluctuate for the next two to three months amid emerging signs of investment losses, customer defaults and hidden debt as companies report earnings, he added.
“It’s very much a cyclical story,” Rocks said at a presentation to clients and reporters in Singapore. “Taiwan and [South] Korea will be the best-performing markets for the full year in 2009. However, you’ve got to get the timing right.”
Taiwan’s benchmark index fell 46 percent last year, while South Korea’s KOSPI index retreated 41 percent as the worsening financial crisis and global recession weighed on company earnings. The MSCI Asia-Pacific Index dropped a record 43 percent during the period.
Taiwanese companies have to refinance about US$23.8 billion of debt and those in South Korea have US$24.8 billion, the most in Asia after China, Macquarie estimated.
“We would not be investing in those markets right now because these are the markets where the balance-sheet risks are the most extreme in the short term,” Rocks said. “You need to time your entry.”
Companies may need to slash their production by as much as 20 percent to exhaust their inventories because of weak consumption, Rocks said.