Legislative elections and referendums: Market set to rebound, analysts say

Two women walk past a wall of TV monitors in a stock brokerage in Taipei last Monday. Market watchers yesterday predicted a short and mild rebound in the local stock market. PHOTO: LIAO CHEN-HEUI, TAIPEI TIMES

The local stock market looks set for a moderate rebound tomorrow as political uncertainty subdued after the opposition Chinese Nationalist Party (KMT) won a landslide victory in yesterday's legislative elections, an outcome most investors had expected.

Analysts certain companies may benefit from expectations that cross-strait ties could improve, as the KMT has tended to adopt a compromising attitude in disputes with China.

Companies stand to benefit from an easing in cross-strait relations include those in traditional industries, such as food processing conglomerate Uni-President Enterprises Corp (統一) and transportation stocks such as Eva Airways Corp (長榮航空).

These companies are likely to take the lead in a short-term rebound, analysts said.

"As the political uncertainty vanishes, at least for now, investors will be better able to pick investment targets, as their performance will reflect their fundamentals," Andrew Teng (鄧安瀾), a senior analyst with Taiwan International Securities Corp (金鼎證券), said yesterday.

The post-election rebound, however, would not be steep and may not last until the presidential election in March, which would pose a greater political concern for investors, Teng said.

Besides, the local stock market, and heavyweight tech shares in particular, are closely linked to US stock markets, he said.

Wall Street lost ground for the third straight week last week, with the Dow Jones falling to 12,606.3 points on worries about weakening consumer spending and a worsening credit crunch.

Dragged by the gloomy US stock market and local political uncertainty, the TAIEX has declined 3 percent since the beginning of the month.

"I believe investors will be cautious about expanding their equity portfolios, meaning the turnover on the TAIEX might not increase significantly over the next few trading sessions," Teng said.

He predicted that transportation, banking, foods and construction stocks would outpace other shares during the expected rebound, helped by anticipation that relations between Taiwan and China would improve.

Alan Tseng (曾炎裕), an analyst with Capital Securities Corp (群益證券), also expects a mild, short-lived rebound.

"The upcoming earnings season will be a major factor driving the local stock market, starting later this month," he said.

The nation's benchmark index may rise to between 8,000 and 8,400 points next week from an average of 8,003.58 points last week, Tseng said.

The daily turnover on the TAIEX could shrink to NT$100 billion next week from NT$132 billion last week, he said.

Over the past week, state-run financial service provider First Financial Holding Co (第一金控), Fubon Financial Holding Co (富邦金) and Eva Airways were among foreign investors' favorite purchases. Foreign investors hold more than one-third of Taiwanese stocks by market value.

"We believe companies with substantial growth from the Chinese market, such as Uni-President, and firms in traditional industries, such as Taiwan Cement Corp (台泥), will be good investment targets for investors aiming for long-term returns," Tseng said.

For investors who favor the tech sector, Tseng recommended blue-chips AU Optronics Corp (友達光電) and High Tech Computer Corp (HTC, 宏達電) as his top picks.

AU Optronics is set to benefit from an expected boom in the liquid-crystal-display (LCD) industry this year, and HTC is likely to enjoy high growth as a result of its success with its own-brand mobile phones, he said.

However, politics still cast a shadow over the market.

Teng that investors allocate 30 percent to 50 percent of their capital to buying local stocks gradually before the presidential election in March.

"It will be a safer time to make big investments after the presidential election," Teng said.

Shia Ben-chang (謝邦昌), professor in the statistics and information science department at Fu Jen Catholic University, said the nation's consumer confidence index was more likely to go up after the legislative elections, as the confidence reading was lower than that of other countries and had reached the bottom of the curve.

"However, consumer confidence will continue to fluctuate in the first half of this year owing to continued political uncertainties," Shia said in a telephone interview yesterday.

Last month, the nation's consumer confidence index dropped to a six-year low, dragged down mainly by a deteriorating outlook on local stocks, statistics released on Dec. 28 last year by National Central University's Research Center for Taiwan Economic Development showed.

Additional reporting by Jerry Lin