Taiwan's stock market will enjoy a liquidity-driven rally this year thanks to a continuous inflow of foreign capital as a result of the strengthening New Taiwan dollar, a stock market veteran said yesterday.
"I'm very optimistic about the stock market this year," Peter Kurz, chief executive officer of Insight Pacific Research (
Kurz, the former director of Merrill Lynch's Taiwan office, is known as "Mr. Taiwan" by local media for his fluency in Taiwanese and Mandarin as well as his skill in sensing economic trends. He helped launch Merrill's international securities brokerage operations in Taiwan in January 1998.
He predicts the benchmark TAIEX to rise to 7,600 points by the end of the year, mainly because of the George W. Bush administration's weak US dollar policy, which would push the local currency higher and bring more foreign funds into local bourse.
"It will be a liquidity-driven rally," he said.
A rise to 7,600 would represent a nearly 22.4-percent increase from the TAIEX's closing level yesterday at 6,210.22 points.
Furthermore, Kurz said he would not be surprised if there was an even stronger 45-percent jump to 9,000 points this year, if individual investors' bought more shares on credit.
The expected flush liquidity would result in continuing inflows of international hot money from the US and increasing repatriation of overseas capital by Taiwanese firms to reduce exchange losses as the NT dollar strengthens, Kurz said.
"It is very obvious that overseas fund mangers will increase their investment in the local stock market this year, as the huge inflow of hot money to the local bourse on Jan. 2 [the first trading session this year] can serve as a precursor," he said.
Foreign investors cannot ignore, or avoid buying, Taiwanese stocks as Morgan Stanley Capital International is expected to increase its weight on the TAIEX after the government lifted restrictions on inflows of foreign funds by removing the long-term qualified foreign institutional investors (QFII) scheme last October, Kurz said.
Overseas fund mangers bought NT$52.19 billion net worth of Taiwanese shares this month as of last Friday.
The massive inflow of overseas funds has led to a quick appreciation of the NT dollar in the first week of January, a dealer at the Shanghai Commercial and Saving Bank said.
The NT dollar has appreciated by about 0.7 percent this month. It weakened NT$0.01 to NT$33.718 against the greenback yesterday due to the central bank's interference and slower inflow of overseas funds, the dealer said.
With a continuous influx of foreign funds, Kurz said the central bank would be under growing pressure to allow the NT dollar to strengthen, but he did not expect to see the central bank let the local currency move up against the US dollar ahead of the March presidential election.
When asked about possible impact of the election on local stock prices, Kurz answered that the political factor would not weigh on the stock market.
"Instead, I see it's a good time to buy shares," he added.
Talking about promising stocks, Kurz said banking and construction shares would mostly benefit from the rally driven by flush liquidity. Tech shares including semiconductors and memory chips also have chance to rise, he added.
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