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EDITORIAL: Be cautious of optimistic bulls

Rarely does Taiwan have a chance to embrace so much positive economic news in one week. It all started with last month’s stronger-than-expected export figures released by the government on Thursday, despite concerns about the NT dollar appreciation and US economic slowdown.

Exports last month grew a significant 22.8 percent year-on-year to an all-time high of US$24.25 billion, compared with February’s 18.5 percent rise to US$17.66 billion. This stellar performance was thanks to strong demand from China and the growing Asian market, the government said.

Then, on Wednesday, global investor Jim Rogers gave a speech in Taipei and said he was focusing on NT dollar assets and buying Taiwanese stocks on expectations that cross-strait relations will improve after the presidential election last month.

That was quite a turn for the cofounder of the Quantum Hedge Fund and the author of several investment books, who had shied from investing in Taiwan for years. Rogers even said that he might consider moving to Taiwan from Singapore, as the election appears to have opened up enormous opportunities for both Taiwan and China.

Standard & Poor’s had more good news for Taiwan on Friday as it raised the country’s sovereign ratings outlook to stable from negative, its first such move since November 30, 2004, when it downgraded Taiwan’s sovereign ratings outlook.

S&P attributed its upgrading action to anticipated political change across the Taiwan Strait and an improvement in the government’s financial strength recently. Consequently, analysts hailed the S&P’s move as a positive development for Taiwan’s long-term investment sentiment.

This spate of positive news seems to support optimistic views that Taiwan’s economy isn’t likely to suffer much from the US slowdown this year. Furthermore, the nation’s resilient export growth may help ease concerns about the potential impact on Taiwan from global market turbulence. News that the nation’s stock market has risen 4.52 percent since the presidential election, while many of its regional peers are still in negative territory, only reinforce this kind of view.

But looking ahead, will economic fundamentals sustain this optimism? Actually, whenever a wave of euphoria spreads so fast, it is always time to reconsider if there’s something wrong with this view.

There are still concerns over the nation’s economic prospects in the wake of rising prices for food, energy and other commodities. The latest official inflation data showed annual consumer price index (CPI) growth climbed to a fresh high of 3.96 percent last month, following a growth of 3.87 percent in the previous month.

The inflationary problem may get worse if the new administration decides to unfreeze the current cap on fuel prices after May 22, as vice president-elect Vincent Siew (蕭萬長) told local press recently that the change of gasoline price should follow the market mechanism and electricity rates should rise in tandem with future hikes in fuel prices.

Even though the weighting of the energy-related items are relatively low in the government’s CPI component calculation — which means theoretically that the CPI reading should not hurt too much if fuel and electricity prices do rise, the new administration should act cautiously, because the impact on any upward price adjustment is huge and the ripple effect is hard to estimate. Such price hikes could hurt consumer spending, when the nation’s external trade faces a challenging year.

A good investor will learn how to evaluate information critically and be critical of positive market sentiment before seeing solid evidence that backs it up.
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