TAIEX to stay in the doldrums, analysts predict

WAIT-AND-SEE::Investors are likely to wait to see what happens with the capital gains tax and the Greek election on June 17 before plunging back in

By Kevin Chen  /  Staff reporter

Mon, May 28, 2012 - Page 12

The TAIEX fell last week to close at its lowest level since Jan. 3 as investors struggled with both domestic policy uncertainties and external macroeconomic headwinds. Equity strategists said the benchmark index would likely test the psychologically important 7,000-point mark this week before establishing a clear direction for the future.

“Taiwanese shares have continued to lag behind international markets so far this month amid market concerns over domestic and external issues,” Shen Chien-hung (沈建宏), a director at Taishin Securities Investment Trust Co (台新投信), said in an investment note on Friday.

The domestic policy issues in question are the government’s planned capital gains tax on securities investments and its recent decisions to allow petroleum-based fuel and electricity prices to increase, while investor sentiment would continue to fluctuate in the short term, at least until Greece holds fresh elections on June 17, Shen said.

The TAIEX dropped 1.11 percent last week to close at 7,071.63 points in Friday’s trading, the lowest level since Jan. 3 when the index ended at 7,053.38, data from the Taiwan Stock Exchange (TWSE) showed. Compared with this year’s closing high of 8,144.04 seen on March 2, the index has dropped 13.17 percent, data showed.

With the proposed capital gains tax continuing to weigh on investor sentiment, average daily turnover fell 14.51 percent to about NT$61.67 billion (US$2.08 billion) last week, from the NT$72.07 billion the previous week, according to TWSE’s data.

JPMorgan analyst Nick Lai (賴以哲) said the impact of the capital gains tax discussions on market sentiment could be minimized if the Legislative Yuan can finalize and approve a draft bill by the end of this session, and the market would be likely to see a short-term technical rebound.

“However, if we do see a short-term technical rebound, we believe that would be a sell into the rally opportunity, rather than anything structural, unless fundamentals in the US and EU surprise on the upside,” Lai said in a report on Friday.

However, Chang Shu-hui (張淑蕙), a fund manager at Prudential Financial Securities Investment Trust Enterprise Co (保德信投信), said the local bourse had a slim chance of staging a big rebound, given the significant shrinkage in market turnover in the past two months.

Since the Ministry of Finance initiated the plan of a capital gains levy on April 5, average daily turnover has fallen to about NT$70 billion, or about half of the NT$131.73 billion seen on March 2, with foreign investors selling a net NT$120 billion in local shares in the past two months, based on TWSE’s data.

Meanwhile, a continual decline in margin loans for the past three months to around NT$190 billion last week — close to pre-global financial crisis levels in 2008, but 11.8 percent lower than this year’s high of NT$215.4 billion — has also shown local investors become more conservative in building investment portfolios, she said.

So far this year, 59 companies listed on the Taiwan Stock Exchange or the GRETAI Securities Market have implemented share-buyback schemes to support their stock.

Chang said she expects more companies will repurchase their shares on the open market in the near term, which may create a good buying opportunity for investors.