Taiwan’s benchmark stock index may fall 15 percent this year as a move by Beijing to allow its currency to rise hurts the competitiveness of the nation’s manufacturers in China, CLSA Asia-Pacific Markets said.
The TAIEX may drop to 6,800 by the end of the year, led by technology companies and manufacturers with operations in China, said Nicholas Teo (趙長順), head of research for CLSA.
The measure slid 0.7 percent to 7,952.17 at the close in Taipei yesterday, extending the decline this year to 2.9 percent.
“Most of Taiwan’s manufacturers have production bases in China,” Teo, who became head of the research team in January, said in an interview yesterday at Bloomberg’s Taipei bureau. “That would add pressure to costs and potentially squeeze margins.”
China will allow the yuan to gain this year, all 19 analysts surveyed by Bloomberg News last month said. Twelve are forecasting a move by June 30, making it cheaper for Chinese consumers to buy foreign products and pushing up the cost of the country’s own goods on international markets. China has left the yuan pegged at about 6.83 per US dollar since July 2008.
CLSA Asia-Pacific Markets, third-ranked by both Asiamoney and Institutional Investor for its coverage of Taiwan, expects the yuan to rise by an annualized 5 percent to 7 percent per year, Teo said.
Compal Electronics Inc (仁寶), the world’s largest laptop maker, which plans to invest US$180 million to expand its China production site, dropped 1.5 percent to NT$43.20, the most since April 19. Hon Hai Precision Industry Co (鴻海), the world’s largest electronics maker with about 600,000 workers in China as of March last year, dropped 1 percent to NT$147.
Taiwan’s exporters may also be hurt by a strengthening of the nation’s currency, Teo said. The New Taiwan dollar may rise a further 0.7 percent to NT$31.20 by the end of the year as it lags behind other Asian currencies, he said.
The NT dollar’s 1.9 percent gain so far this year is the third-worst among the 10 most-actively traded currencies in Asia, excluding Japan.
Taiwanese consumer companies, such as retailers, will benefit most from the yuan appreciation, Teo said. He declined to name individual stocks.
The TWSE Food Index, which tracks 20 food-related companies, rose 0.5 percent, the most among 28 industry groups on the TAIEX.
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