Several foreign brokerages have recently predicted that Taiwan’s benchmark index will climb to 10,000 points next year on improving relations between Taiwan and China and ample liquidity in the market, leading to a 14.69 percent upside from Friday’s closing.
However, some of their local peers have appeared to be more cautious, saying solid economic fundamentals are required.
The TAIEX rose 1.1 percent last week from the previous week and has gained 6.48 percent so far this year, closing at 8,718.83 in trading on Friday.
However, as weekly turnover narrowed to NT$695.33 billion (US$22.73 billion) last week from NT$727.18 billion in the previous week, the local bourse is unlikely to challenge the 9,000 mark in the short term, said Hsu Ching-chi (許敬基), a fund manager at Prudential Financial Securities Investment Trust Enterprise Co (保德信投信), in a note on Friday.
For next year, Citigroup Global Markets set a target for the TAIEX of 10,000 in its latest strategy report, saying that capital expenditure will be key to economic growth in the next two years, while many Taiwanese companies are now entering their early stages of capital spending expansion.
“For the first time in a decade [except for the 2004-2005 DRAM/FTF build-up], Taiwan corporates are significantly raising capex,” Peter Kurz, head of Citigroup’s research team, said in a report released on Friday.
The US brokerage said financial shares would benefit from the growth in corporate loan business es because of the capex expansion, but local banks might face consolidation pressure to compete with bigger Chinese banks in the post-Economic Cooperation Framework Agreement period.
“Combining the government-owned Bank of Taiwan (臺灣銀行), Land Bank of Taiwan (土地銀行) and possibly Chang Hwa Bank (彰化銀行) into a super-sized national champion might actually become a reality,” Kruz wrote.
Morgan Stanley said in a report on Dec. 3 that the TAIEX would hit 10,000 in the fourth quarter of next year, supported by closer economic ties with China and the rising popularity of Taiwanese brands in that market.
“Taiwan is entering a super-cycle as a beneficiary of the ‘peace dividend,’” Morgan Stanley analyst Frank Wang (王安亞) said in the report. “China and tech are dual engines of growth [in local equities].”
Morgan Stanley said Taiwan’s research and development and tourism sectors would benefit most from warming relations with China, while the Taiwan Stock Exchange could develop into “Asia’s NASDAQ” with more primary listing of technology companies and more secondary listings via issuing Taiwan depository receipts.
Credit Suisse was also bullish about local equities but said the local market would face a “bumpy ride up” next year because of lingering economic uncertainty in advanced economies and monetary policy tightening in China to fight inflation and hot money inflows.
“We expect a moderate expansion for the Taiwan index in 2011 and set a year-end target for the TAIEX at 9,500,” Credit Suisse -analyst Randy Abrams said in a report issued on Nov. 24.
The TAIEX last hit the 10,000 point-level on April 5, 2000, Taiwan Stock Exchange data shows.
Over the past 10 years, investors have tried at least three times — in July and October of 2007 as well as in the period of between March and May in 2008 — to bid up shares further once the TAIEX passed the 9,700 mark, but failed on each occasion.