Shares plunged yesterday after Merrill Lynch & Co released a report on Thursday that downgraded Taiwan equities on a dismal outlook. The drop ended a four-day rise.
The benchmark TAIEX plummeted by 89.30 points, or 1.34 percent, to close at 6,553.66, on turn-over of NT$100.29 billion (US$3.1 million) yesterday. For the whole week, the index closed up 15.44 points or 0.24 percent from the previous week, according to Taiwan Stock Exchange statistics.
Foreign investors bought a net of NT$2.59 billion (US$80 million), while local brokerage and institutional investors collectively sold a net of NT$4.46 billion worth of shares yesterday.
"The decline was mainly led by flat-panel makers on stockpiling inventory concern as well as weakening Asian markets in Japan and South Korea," said George Hou (
Japan's Nikkei 225 Stock Average dropped 1.55 percent to 15,663.34, while the Kospi index of South Korea lost 2.83 percent at 1,328.95.
AU Optronics Corp (
Merrill Lynch announced it would downgrade the Taiwan market to "underweight" from "overweight" in the brokerage's asset allocation in Asia, excluding Japan, as the rally in Taiwanese equities from November last year looked tired and headwinds were gathering for the local market.
Merrill Lynch strategist Spencer White cited the approaching tax season in May, which will draw liquidity away as retail investors sell and dampen tech momentum. He also noted President Chen Shui-bian's (陳水扁) policy initiative to "cease" the operation of the National Unification Council and the unification guidelines, which has increased cross-strait tensions.
With close to US$11 billion of buying in the last three months alone, and deterioration in short-term catalysts, the US brokerage expects rapidly diminishing prospects for incremental inflows of foreign funds, and advised selling before the rest of the herd, White said.
Merrill Lynch said they would not re-visit their take on the local bourse until the TAIEX trends down to a level closer to 6,000 points.
Despite the US brokerage's bearishness, other analysts were more positive about the prospects of Taiwan's market.
"I am bullish about the market," Hou said. "Merrill Lynch's prediction represented a 10-percent downside from the current level, but I cannot see any factors bearish enough to dent the market on such a big scale."
He added that the TAIEX would level out between 6,300 and 6,700 by April and then rebound due to the upcoming high season in the third quarter, he added.
Meanwhile, BNP Paribas Securities (Taiwan) Co said they will maintain their "overweight" rating for the local bourse.
The French brokerage maintained its previous forecast that a peak of 7,800 would be reached in the last quarter of this year.
The macro-environment in the region is promising, as Japan's economy is recovering with interest rate hikes likely, and strengthening Asian currencies are expected to draw robust foreign capital inflows, said Jesse Wang (
Taiwan's exports are expected to pick up in light of their traditionally strong season in the second half of the year, he said.
Uncertainty should fade by the third quarter, as amendments to the Bankruptcy Law (
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