Peter Kurz, Citigroup Inc’s head of Taiwan research, said it would be “a mildly positive market factor” if Taiwan were to sign an economic cooperation framework agreement (ECFA) with China, with property stocks likely to benefit the most from such a cross-strait economic tie-up.
The Citigroup analyst said he expected Taipei and Beijing to sign the ECFA at a cross-strait trade meeting next month or in June.
He said he based his timing prediction on political interests on both sides ahead of Taiwan’s year-end special municipality elections.
“After two electoral defeats [for] the KMT [Chinese Nationalist Party] in December and February, another defeat in the year-end mayoral elections could further damage the KMT’s prospects in the presidential election in 2012,” Kurz wrote in a report issued yesterday.
“Some polls already show President Ma Ying-jeou (馬英九) lagging [behind] DPP [Democratic Progressive Party] chairwoman Tsai Ing-wen (蔡英文) should the presidential election be held today. The negative poll results, therefore, could generate more positive political catalysts over the course of the rest of this year, ECFA included.”
Critics of the pending ECFA have warned that signing the trade pact would lead to a massive wave of cheaper Chinese products flooding the local market and an increase in unemployment among domestic traditional industries.
Kurz said he would not be surprised if the signing of the ECFA did not meet original market expectations, as he said was the case with the signing of a cross-strait memorandum of understanding on financial supervision last year.
ECFA would only be “a mildly positive market factor despite its highly publicized arrival,” he wrote. However, it would “create a new paradigm ... a first among many bilateral cross-strait agreements to come,” he added.
Compared with other sectors likely to be affected by the proposed ECFA, Kurz said the property sector would be the only one to clearly benefit from the pact.
Property shares already outperform the benchmark TAIEX, on expectations that Chinese investors, foreign firms and even speculators would lease or buy property in Taiwan in the wake of the ECFA deal. So far this year, the building-material and construction sub-index, which reflects the general share performance of property shares, has risen 3.27 percent, while the TAIEX has fallen 1.93 percent, Taiwan Stock Exchange data showed.
Citigroup favors Huaku Development Co (華固建設) and Far Eastern New Century Corp (遠東新世紀) compared with other property shares.
RBS Asia Ltd analyst Andre Chang (張致竑) in Taipei also said he expected property shares to present short-term strength after newly launched pre-sale projects recorded good sales with some seeing strong selling prices in prime locations, the brokerage said in a client note on Monday.
The brokerage cited two reasons why property shares would continue strengthening into the second quarter: more pre-sale projects launched by property developers and an extended period of lower interest rates by the central bank.
In addition, a higher NT dollar value is likely to support local property, RBS said.
“The market’s speculation on Chinese yuan appreciation versus the US dollar has triggered the appreciation of [the] NT dollar recently, providing more catalysts for property stocks to move up,” Chang said in the note.
RBS also prefers Huaku and Far Eastern New Century, as well as Farglory Land Development Co (遠雄建設).
In Taipei trading yesterday, Huaku fell 3.51 percent to NT$88, Far Eastern dropped 2.94 percent to NT$36.3 and Farglory ended 3.84 percent lower at NT$72.6.
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