The Democratic Progressive Party's (DPP) surprise victory in the tight mayoral race in Kaohsiung, allowing the nation's two largest political parties to each lay claim to a municipal mayorship on Saturday, may lead to a short-term correction in the local bourse, market watchers said.
However, the benchmark index could rally after the completion of the correction, they added.
The TAIEX closed down 0.65 percent at 7,636.3 on Friday ahead of the Taipei and Kaohsiung mayoral elections. The index, which led other Asian markets with a rise of 7.78 percent last month, has gained 0.3 percent so far this month.
Mike Chow (周道中), a manager with Yuanta Core Pacific Securities Corp (元大京華證券), said the stock market's performance today may be weak, or at most, remain neutral.
Investor sentiment is likely to be bearish at the market's opening as hopes of a further relaxation of Taiwan-China relations were dashed, Chow said.
Electronics stocks may perform well, buoyed by the gains on US stock markets on Friday. But the TAIEX's overall performance is likely be affected by a pullback in financial stocks, he said.
As the DPP is able to continue to wield force in the south, the government has little motivation to reflect on its "deep green" (or pro-independence) stance, and initiating dialogue with China would be less likely.
"As China-concept, asset and tourism stocks fall out of favor, the bourse would correct downward to below 7,500 this week," Chow said.
Saturday's election result rep-resented a big failure for Taipei Mayor Ma Ying-jeou (馬英九), who has been widely viewed as the Chinese Nationalist Party's (KMT) only hope to retrieve the presidency in 2008, said Thomas Lee (李桐豪), professor of money and banking at National Chengchi University.
Banking on his charisma, Ma has put on a one-man show in campaigning for the KMT's Kaohsiung mayoral candidate Huang Chun-ying (黃俊英), who lost by a razor-thin margin to his DPP rival Chen Chu (陳菊).
But Ma's efforts neither effectively boosted the turnout rate, nor helped integrate the KMT's ally, the People First Party (PFP). Support from other KMT heavyweights, including Legislative Speaker Wang Jin-pyng (王金平), who has a strong supporter base in southern Taiwan, did not work either, Lee said.
"It'll be a blue Monday," he said.
Several polls predicted days before the elections that the KMT was likely to sweep to victory in both Taipei and Kaohsiung as the DPP has been plagued by a slew of scandals surrounding the first family.
"But judging from the election result, public expectation toward Ma's 2008 victory has dropped. That would cast more doubt on the government's schedule in pushing forth relaxation policies to enhance interaction with China," Lee said.
The TAIEX hit a six-year high to 7,498.15 on Nov. 27, spurred by the US-based Carlyle Group's bid for Advanced Semiconductor Engineering (ASE, 日月光半導體), the world's largest chip testing and packaging company. But the market has since then started consolidating, he said.
Lee emphasized that China-concept, tourism and shipping stocks would have a hard time picking up in the near future. Shares of traditional industries, however, would be less affected.
Although most commentators have deemed the election as a prelude to the 2008 presidential race, foreign businesses in Taiwan are at ease and not worried about any economic fallout.
"I don't think we as a chamber particularly have any concerns regarding the economic situation based upon the mayoral elections in Kaohsiung and Taipei," Ralf Scheller, chairman of the European Chamber of Commerce Taipei (ECCT), said last week.
He said ECCT has enjoyed good cooperation with both Taipei and Kaohsiung city governments and that the relations would not change no matter who won the elections.
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