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Presidential election 2008: Business: Stock market set to stage brief rally

A man keeps an eye on the TAIEX stock exchange index in a securities company in Taipei on Wednesday. The index closed at 8,524.99 on Friday, up 187.37 points from Thursday. PHOTO: CHEN TSE-MING, TAIPEI TIMES

The local stock market is expected to stage a short-lived rally next week as some investors maintain interest in buying stocks in financial, or traditional sectors, which are seen as major beneficiaries of the new government's economic stimulus measures.

Long-term investors may still be willing to extend their purchase of local stocks during the post-election period, but they will be cautious as the local bourse will face mounting pressure from global peers, which are under the shadow of the possible effects of the US recession, analysts said.

Backed by a new buying spree, which may not be as strong as last week, "local stock is likely to rise one, or two trading sessions as the outcome of the presidential elections match the market expectation," an official at a local investment company said. He requested anonymity.

Asset-rich Tatung Co (大同), Asia Cement Corp (亞泥) and the nation's food conglomerate Uni-President Enterpries Corp (統一企業) were good investment targets for investors seeking long-term returns, he said.

The benchmark TAIEX index may slightly expand last week's gain to between 8,600 and 8,700 points, but will be capped by uncertainty about the macroeconomic environment and possible weak corporate earnings results to be released next month, the local investment consultant said. The TAIEX closed 2.25 percent higher at 8,524.99 on Friday.

With limited impact from a slowing economy in the US, "We believe stocks in traditional sectors will still have [upside potential] in the next one or two months," said Sophia Cheng (程淑芬), managing director of equity research at Merrill Lynch's Taiwan branch, at a forum ahead of the presidential election last week.

Merrill Lynch is positive about the nation's traditional sector on the back of the government's renewed efforts to spur domestic demand and thereby the nation's economy by building stronger trade ties with China.

Newly elected president Ma Ying-jeou (馬英九) of the Chinese Nationalist Party (KMT) had told voters before the election that he would scrap the long-term ban on direct flights between Taiwan and China by the summer and would raise the quota for Chinese visitors to Taiwan as well as allow Chinese to invest in the local property market.

Goldman Sachs also said a KMT victory should lead to positive policy change and improved business confidence, a report dated March 7 said.

Following the KMT's win Goldman Sachs rerated Taiwanese shares to a price-to-earning ratio of 15, which translates to a index level of 10,000.

Expressing a similarly bullish view on local stock market in the long run, Merrill Lynch said the new government's policy change may offer a chance for an upgrade from global fund managers, which had under-weighed the local stock market over the past few years.

"We are trying to get a picture about what the Taiwanese stock market will look like at the end of 2009," Cheng said.

Foreign investors resumed large-scale purchase of local shares worth NT$24.25 billion on Friday, reversing their profit-taking sales over the past month, Taiwan Stock Exchange data showed.

Financial stocks including First Financial Holding Co (第一金控) and Chinatrust Financial Holding Co (中信金控) were the favorites among overseas fund managers on Friday.

In contrast to the consensus bullish view on financial sector, Sherry Lin (林淑娥), a director of Credit Suisse's equity research in Hong Kong, advised investors to take profits when the index is high following the election on lingering uncertainty on the US subprime mortgage crisis.

"Asian stock markets will have a close link with the US market as used to be the case," Lin said, despite the belief that Asian markets would go their own way due to the rise of China.
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