Fri, Dec 31, 1999 page21

• Review I: Crisis over for TAIEX

  Although there were some jittery moments in 1999, the market was nursed back to health by demand for high-technology stocks

  • By Michael Logan / STAFF REPORTER
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  Taiwan stocks shook off the effects of the Asian financial crisis this year, after declining 21.6 percent in 1998.

  The TAIEX climbed 31.6 percent from its 1998 close of 6,418.43 to finish the year at 8,448.84. Electronics led the market's recovery, with companies such as VIA Technologies (威2?q?l) rising to NT$345, or 336 percent for the year -- the biggest gain of any company on the Taiwan Stock Exchange.

  Other high-tech star performers included Acer Peripherals (明其石 1q腦), which gained 278 percent to NT$130, and sister company Acer Sertek , which rose 273 percent to NT$184.

  The year was also a good one for the so-called Internet concept stocks, such as Systex (精業), which owns a 38 percent stake in Kimo.com. Systex finished the year at NT$214, up 270 percent.

  Out of the top ten gainers on the TSE, the only non-technology firm was Far Eastern Textile (遠東紡織), which rose 209 percent to NT$75. Still, investors bid up Far Eastern for its holdings in mobile telephone company Far Eastone.

  The OTC index climbed 24.9 percent to 207.18 from its 1998 close of 165.80.

  "There's no doubt that electronics were the biggest performers over the last year," said Naiwen Kerr, assistant vice president of Taiwan International Securities.

  But in addition to high-technology companies, Kerr said, "Investors next year need to have their eyes open to other industries," such as plastics and banking.

  Plastics makers such as Formosa Plastics (台塑) and Nan Ya Plastics (南亞塑罵) are expected to benefit from an upturn in the industry's cycle, while banking shares may benefit from mergers and acquisitions and the government's efforts to thin the crowded industry in the run-up to Taiwan's WTO entry.

  "I think next year the stock market will grow in a more healthy way so that more sectors have a chance to perform," Kerr said.

  Domestic drive

  In addition, whereas 1999's growth was led primarily by higher demand for exports, the domestic sector -- led by quake reconstruction spending -- is also expected to contribute to Taiwan's growth in the coming year, Kerr said.

  Another positive factor, Kerr said, is Asia's economic recovery, which may draw the interest of global fund managers. "If they want to put money into Asia, then they'll certainly think of Taiwan," he said.

  One positive trend that occurred in 1999 that may continue next year is the buying of local shares by foreign institutional investors. Net buying by foreign investors came to roughly US$10.5 billion this year, and Kerr anticipates the amount could reach US$15 billion over the next year.

  But, "I expect 40 percent to 50 percent of that will be invested in the first quarter," Kerr said. "Everybody will want to take the first-mover advantage."

  The rush to be ahead of the pack in part explains why stocks are expected to peak in the second quarter of next year.

  Kerr said the TAIEX will likely reach 10,300 during the second quarter after the March presidential election and companies' dividends are paid out.

  Grace Li, research manager of MasterLink securities, said she sees the TAIEX peaking at 11,000 in the second quarter and trading between 9,000 and 10,000 in the second half of next year. She also sees the TAIEX reaching 9,000 in the month of January.

  Some of the negative influences to watch for, Li said, would be increased political tensions with China during the presidential election, which may lead to stock market jitters. "Investors are easily panicked," Li said.

  Before President Lee Teng-hui (李登輝) clarified in July Taiwan's relationship with its neighbor as "state-to-state" in nature, the TAIEX had just climbed 57.2 percent from its low of 5,474.79 reached on Feb. 5.

  But when China began rattling its saber in response to Lee's comments, investors dumped their shares. The selling didn't stop until stocks had declined roughly 20 percent to 6,823.52.

  "Certainly [the presidential election] is a big factor," Kerr said. "But you can never predict" what will irritate China.

  Li said other potential negative factors that may surface in the coming year include a correction in the US stock market, which is at "historically high levels."

  "There's plenty of room on the downside," Li said. "I don't think the bullish run will last that much longer."

  Outlook

  There is also the government's planned sale of Chunghwa Telecom (??華1q信), expected in the latter half of next year.

  "Chunghwa Telecom will absorb hundreds of billions from the market," Li said, thus leaving little money to be spent on other issues.

  Still, Li, like Kerr, is bullish going forward. Some of the issues MasterLink favors include DRAM maker Windbond Electronics (華?1q?l), currently priced at NT$74.50. MasterLink expects strong growth in the DRAM market will help lift its shares to NT$100.

  Taiwan International also likes Winbond and has a price target of NT$120.

  A few of the other companies MasterLink favors for their high-growth prospects include Acer Peripherals (target: NT$180; current price: NT$130), TSMC (target: NT$240; current price: NT$167), Acer Inc (target: NT$120; current price: NT$94.50) and UMC (target: NT$150; current price: NT$112).

  Kerr said Taiwan International also likes TSMC, with a price target of NT$250, and UMC, with a price target of NT$180.

  "Electronics is currently the most healthy sector," Kerr said. "They deserve to be the star industry in Taiwan."
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