The stock market is set for a rebound as it remains oversold thanks to the recent pessimism over the banking system, leading analysts said yesterday.
Francis Yu, Taiwan country head of UBS Warburg Securities, said the stock market may climb to over 7000 points by the end of the year, though the index is not expected to see any sharp recovery.
"That is why I am saying a rebound, not a rally," he said. The market has plunged by as much as 35 percent since January, which means most of the bad news is already discounted in the share prices, analysts said.
While Taiwan's financial system has endemic problems, the country is far from a crisis, he said, adding: "It is easy to analyze what has already happened, but more difficult to come up with constructive solutions."
Ajay Kapur, Asia Pacific strategist at Morgan Stanley Dean Witter, said that the slew of negative reports in the financial markets may be implying that the market is nearing its bottom.
Asian financial markets crashed in 1997 and 1998 just as the widespread optimism over Asian economies pushed the markets to dizzying heights.
The company is now advising its clients to "wait for the bull rally" before buying Asian shares, Kapur was quoted as saying in the local media yesterday.
He said history shows that any clear signs of a financial crisis will force the US Federal Reserve Board to cut interest rates, which will push Asian stocks on an upward trajectory.
Fed chairman Alan Greenspan cut interest rates eight times during the Asian Financial Crisis.
Using Hong Kong's Hang Seng Index as a potential example for the rest of Asia, he said, the Hang Seng has risen as much as 50 percent in 12 months following interest rate cuts by the Fed.
Referring to the rising overdue loan ratio in Taiwan's domestic banking system, Kapur said that they are "a decade-old problem."
Analysts believe investors are not likely buy up bank shares, as most of them are trading below their net worth.
Adding to the positive news, the Council of Economic Planning and Development (CEPD, (經建會) said yesterday that Taiwan's gross domestic product (GDP) will grow by more than 6 percent next year despite the consensus view that the country's economy is poised for a slowdown in 2001.
The CEPD, which acts as the coordinator of economic policy within the Cabinet, comes out with the finalized GDP projection in the third quarter of every year.
The figure, which differs from other projections in that it is not revised, is used as a major source of reference by the ministries.
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