Campaign Special ( Business Community ) - Share investors suddenly have to hold their breath

By Jessie Ho
STAFF REPORTER
Sunday, Mar 21, 2004, Page 24

The TAIEX closed up 28.06 points at 6,815.09 Friday, a day before the election, but analysts said investors may be cautious when the stock market opens tomorrow, following statements by Chinese Nationalist Party leader Lien Chan that the election was unfair and needs to be annulled. PHOTO: TAIPEI TIMES

The stock market is likely to slump until the political dispute over the result of yesterday's presidential election is resolved, analysts said.

"While investors were at first expecting a bull market after the presidential election was completed yesterday, it ended up creating even more uncertainties for investors," said Jones Wang (王源錦), a deputy manager at ABN-AMRO Asset Management Taiwan.

"If the dispute is not cleared up before the market opens on Monday, the TAIEX will definitely decline," Wang said.

Following the Democratic Progressive Party's (DPP) narrow victory, the opposition alliance immediately came out and claimed that the poll was "unfair" and that the party will file an appeal to nullify the vote.

Such a move is likely to paralyze stock investors tomorrow as they await a final decision on the poll, Wang said.

If the DPP's ticket is confirmed as the winner, finance and pan-green stocks that were depressed prior to the poll may surge in celebration, Wang said. Investors are likely to dump air carriers and pan-blue related stocks that they has originally snapped up based on anticipation that the pan-blue camp would win, he added.

"The political question is going to impact the market and weigh on investor confidence."

William Lin, a professor of finance at Tamkang University

Transportation stocks led the TAIEX with a total rise of 3.77 percent on Friday, while financials saw a decline of 0.91 percent -- the largest drop in any sector on the bourse.

The benchmark index rose 28.06 points, or 0.41 percent, to close at 6,815.09 on the eve of the poll.

While Wang was hesitant to comment how foreign investors would react to the sudden turn of events, William Lin (林蒼祥), a professor of finance at Tamkang University, asserted that the foreign capital, which currently accounts for some 24 percent of turnover in local bourse, is likely to be withdrawn from Taiwan because of uncertainty.

"The political question is going to impact the market and weigh on investor confidence," Lin said.

Dark clouds, including after-shocks following an attempted assassination of President Chen Shui-bian (陳水扁) and Vice President Annette Lu (呂秀蓮) on Friday, is likely to shroud the market in the short term, but analysts are generally optimistic about the long-term prospects of major sectors in the domestic share market.

"After all the chaos, investors will eventually go back to looking at fundamentals," said Dave Chou (周顯黎), an assistant manager at Yuanta Core Pacific Capital Management (元大京華投顧).

High-tech, finance, and raw-material stocks may continue to lead the market throughout the year, Chou said.

As finance and raw-material shares have enjoyed a considerable bounce since January. And the high-tech sector, especially semiconductor manufacturers, are expected to rebound in the second quarter, he said.

Transportation shares may gradually rise as shipping rates continue to surge, Wang said.

Shares of China Airlines (華航), Taiwan's largest air carrier, and EVA Airways Corp (長榮), the second-largest carrier, have risen at least 50 percent this year on optimism that a Lien victory would speed up the opening up of direct flights to China.

One analyst who asked not to be named, however, said that all signs point to a bullish outlook for the TAIEX, but that a DPP victory could restrain transportation shares as questions over cross-strait links remain unanswered.

"The market is highly sensitive to cross-strait issues," he said. "Chen's less-friendly cross-strait policies will press on the growth curve."