Taiwan’s stock market may rally from the first quarter next year as listed firms’ revise up their earnings estimate, following the TAIEX’s bottoming out at 7,200 in the fourth quarter, a Credit Suisse analyst said yesterday.
“In our view, the TAIEX will reach 8,500 points in 12 months,” Chung Hsu (許忠維), an equity research analyst, told a press conference.
The brokerage had previously forecast a 12-month target of 9,500 points for the TAIEX.
The TAIEX fell 2.2 percent, or 162.90 points, to close at 7,228.47 yesterday, Taiwan Stock Exchange data showed. The benchmark index has tumbled 5.02 percent over the past two days, dragged down by declines in financial stocks.
Financial stocks extended their losses yesterday amid concerns over the exposure of local financial institutions to risky eurozone debt, after the Financial Supervisory Commission’s latest statistics showed the firms’ exposure to debt from the five problematic eurozone countries — Portugal, Italy, Ireland, Greece and Spain — totaled NT$200 billion (US$6.78 billion).
“Although the NT$200 billion exposure is not particularly high compared with the sector’s assets, the current selling reflects the fragility of market confidence in the global financial industry after a recent sell-off in bank stocks in the European and US markets,” Hua Nan Securities (華南永昌證券) analyst Henry Miao (苗台生) said.
Turnover on the local bourse stood at NT$122.59 billion, with foreign investors selling a net NT$9.75 billion in stocks, further pushing the New Taiwan dollar by NT$0.138, or 0.9 percent, to NT$29.625 versus the US dollar, data showed.
The recent correction in the stock market was due to the pricing in of a possible recession led by the eurozone’s debt crisis, as well as technology firms’ downward earnings revisions, Hsu said.
However, based on historical data, the correction duration for Taiwan’s stock market averaged about 10 months, Hsu said, adding that given that the market started to decline in March, it may bottom out in the fourth quarter.
“With no systematic risk, the market may reach the bottom in the fourth quarter, with listed technology companies’ downward earnings revisions finishing as well,” Hsu said.
However, if there is a recession, the correction may extend to about 14 months, while the TAIEX would drop to between 6,200 and 6,300, Hsu said.
However, Hua Nan Securities currently does not expect the debt problem in Greece to become a systematic risk for the global economy.
Hsu said Taiwan’s stock market might rally in the first quarter next year, as profits for local listed companies, especially in the technology sector, would shift to an upward cycle of revision then.
“The average earnings for local listed firms may grow 20 percent for the next year, compared with this year, as the 12 percent earnings decline this year has built up a lower comparison base,” Hsu said.
As for January’s presidential election, Hsu said a closer race could raise the uncertainties about a pre-election rally, although history has shown the TAIEX usually outperforms other markets within the three months before a presidential election.
A recent poll conducted by Cathay Financial Holdings Co (國泰金控) showed that the majority of people in Taiwan do not think the TAIEX would reach the 10,000-point mark before the Jan. 14 presidential and legislative elections because investors were more pessimistic about the market’s outlook and were less willing to hold on to risky assets.
About 46 percent of the respondents said the TAIEX would reach between 8,000 and 9,000 points before the elections, while about 34 percent thought it would hover between 7,000 and 8,000 points.
Additional reporting by CNA
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