The results of Saturday’s nine-in-one elections might result in short-term volatility on the local stock market, equity strategists said yesterday.
However, the market’s medium to long-term outlook would rely more on the ongoing US-China trade row and the meeting scheduled between US President Donald Trump and Chinese President Xi Jinping (習近平) in Buenos Aires later this week, they said.
The ruling Democratic Progressive Party (DPP) won in only six of 22 cities and counties, with 15 cities or counties going to the Chinese Nationalist Party (KMT), including some significant DPP strongholds, such as Kaohsiung and Yilan County.
“The developments in global stock markets will be the major driving force behind the future movement of local equities,” Masterlink Securities Investment Advisory Corp (元富投顧) president Liu Kun-hsi (劉坤錫) was quoted by the Central News Agency as saying.
“Investors need to observe the content of Trump’s conversation with Xi, as their meeting will weigh on global equities,” Liu said.
Ahead of the local elections, the TAIEX on Friday last week closed down 0.49 percent at 9,667.30, a decline of 1.3 percent from a week earlier, with market turnover on the main bourse falling to NT$76.6 billion (US$2.48 billion) — its lowest level this year.
Allianz Global Investors Taiwan Technology Fund (安聯台灣科技基金) manager Peter Liao (廖哲宏) said the impact of the election results would be short-term.
“The widening volatility in the US stock market, the changes in the outlook for some technology industries and the upcoming meeting between Trump and Xi are major factors that will weigh on local equities in the near term,” Liao said in a statement.
Allianz maintains a “neutral and conservative” view on the main bourse, with the market’s mid to long-term outlook closely linked to the economic and political wrestling between the US and China, Liao said.
Yuanta Securities Investment Consulting Co (元大投顧) said that the downside risks for local equities would continue to exist, regardless of the outcome of the elections, and the market would likely remain choppy for a while.
Yuanta, which last week lowered its TAIEX target from 10,900 to 9,800 points, said it has become more cautious on the main bourse and forecast zero earnings growth next year for the companies it covers, which account for 75 percent of TAIEX market cap.
“We would underweight companies with greater China capacity and major exposure to US customers, especially Apple players,” Yuanta analyst Vincent Chen (陳豊丰) said in a note.
“For non-tech, we believe insurance names will suffer from rising hedging costs overseas. We are also cautious on petrochemicals due to the oil price downtrend and weak downstream demand. High dividend and defensive plays, such as telecoms and banks, could be safe havens,” he said.
However, the KMT’s performance might add uncertainty regarding the progress of a tax amnesty proposal by the government to attract overseas Taiwanese money back home, he added.
Several DPP legislators have proposed tax breaks for companies and individuals who repatriate money in order to boost local investment and improve the economy, but government agencies, including the central bank, the Financial Supervisory Commission and the Ministry of Finance, have yet to reach a consensus on the issue, because of concerns about money laundering, fraud and tax fairness.
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