Market watchers are not optimistic about the short-term prospects of Taiwan stocks following the election of the DPP's Chen Shui-bian (陳水扁) to the nation's highest office yesterday.
Taiwan's neighbor may have trouble digesting Chen's victory, they say, and China's reaction could spook local investors.
But on the other hand, any share sell-off over the next few days could be an opportunity to buy stocks cheaply, as the market's fundamentals are strong.
PHOTO: AFP
"The TAIEX will test the 7,500 point support level" this week, said Dicy C. Dai (
"The worst-case scenario has come true for stock investors. With the drastic differences between China and the DPP on the unification issue ... the Taiwan stock market will face difficulties in the next few months, if not years."
The nation's main index closed at 8,763.27 points Friday, down 7.6 percent for the week.
Last Monday, the TAIEX plunged more than 600 points, or 6.6 percent, after investors began to realize that Chen would defeat KMT candidate and current vice president Lien Chan (連戰).
To help support the market, the government purchased an estimated NT$80 billion in stocks last week through four government-linked funds and the national stock stabilization fund.
Minister of Finance Paul Chiu (
Weeks before the election, Gau Ching-Yuan (
"The national stabilization fund has to support the market as much as it can, or else there will be hardly any buyers over the next few days," Dai said.
"If there is anyone to blame for the result of this election, President Lee Teng-hui (
And even with the support of the national stabilization fund, most traditional sectors will not be able to attract investors -- except electronics and exporting stocks -- for quite some time."
But not everyone is pessimistic, as the market may drop for just a few days before bouncing back, provided that China isn't too upset by Chen's victory.
"Taiwan's stock market will inevitably fall in the next two to three days before it rebounds," said Larry Liao (
"The biggest worry undoubtly is China's reaction," Liao said. "I expect China will be announcing its reaction very soon. If China's reaction is far beyond our imagination, the magnitude of the drop will be impossible to predict."
But on the otherhand, if China restrains itself and heeds warnings from the US to keep peace across the Taiwan Strait, Liao said, "I do not think the market will turn into a bearish market. On the contrary ... after the market falls over the next few days, it'll be time to buy."
Liao said the market's fundamentals were strong and noted that stocks have just recently entered a bullish phase.
"According to our research, the average bullish period for the Taiwan stock market in the last three decades has been 45.5 months. And this time [the bullish period] started in February 1999," Liao said. "It should continue sometime into 2002."
Liao said any further downturn would be short-term, and its length would depend mostly on China's attitude. After political factors fade away, fundamentals will then take the market to where it should be, he said.
Peter Kurz, president of Merill Lynch Taiwan, agreed that the stock market may decline in the short term because of investor concern over cross-strait tension. Kurz, dubbed "Mr Taiwan" by local media, was quoted yesterday as saying that support for the TAIEX could be expected at around the 7,500 level.
Kurz said that investors must not worry too much about the political consequences of the election in terms of Taipei's relations with Beijing. He said Beijing might not react too strongly to the election result, while at the same time the US has expressed its concern over the Taiwan Strait situation.
Another analyst who sees a buying opportunity is Shei Shang-yuan (
Shei noted that, in the past, profits have been made by taking advantage of politically inspired sell-offs.
"Just review what happened after several incidents such as the 921 earthquake, Lee's state-to-state comment and the missile crisis before the 1996 presidential election," Shei said.
"Most foreign investors didn't sell their holdings during these incidents and they bought more stocks when the market dropped more. The foreign investors became the biggest winners when the market recovered later," Shei said.
"Therefore, I suggest that investors should buy after the market drops severely sometime next week."
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