Taiwan's prospects brighter in long term

PUBLISHED : Tuesday, 23 March, 2004, 12:00am
UPDATED : Tuesday, 23 March, 2004, 12:00am

Analysts say buying opportunities will arise when the stock market stabilises following the post-election turmoil

Taiwan's fragile economy faces a prolonged period of economic uncertainty but most analysts are bullish on longer-term prospects should the political situation stabilise.

Investors had bet on victory for the opposition candidacy of Lien Chan and James Soong Chu-yu, forcing a rethink of the wider impact from the weekend's turmoil.

'The main concern is that the future economic situation is not as good as most institutions expected,' Fuhwa Investment Trust president Lu Chung-hui said.

A senior government official said yesterday that the administration must spend more time on domestic politics before turning its attention to mainland affairs.

That may stymie prospects for direct links across the strait, a key policy platform for both parties, despite the widely held belief that any agreement was years away regardless of the election outcome.

Yesterday's trading session on the stock market notably saw foreign investors make net stock purchases of NT$7.55 billion (HK$1.76 billion), representing more than 30 per cent of trading activity, compared with an average of less than 20 per cent. Such interest points to residual confidence among foreign investors.

Credit Suisse chief investment officer Nitin Parekh forecast Taiwanese equities would fall 10 to 15 per cent over the next two to three weeks, but sounded a bullish medium-term outlook.

'After that [fall], we should be looking for buying opportunities. Politics is important in forming market sentiment but the Taiwan economy has performed very well,' Mr Parekh said, recommending reflation plays such as banking and property counters.

'People are just confused ... but the government will sort things out soon.'

ING head of Taiwan research James Carroll was less optimistic. 'First and most importantly, direct link with China will be slowed,' he said.

'The big losers [will be] airlines and shipping firms while financials will benefit from continued merger and reform in Chen Shui-bian's second term ... but it will be difficult for them to find any significant penetration into the China market.'

The government appeared not to have directly intervened to halt yesterday's stock slide despite Finance Minister Lin Chuan saying the NT$500 billion national stabilisation fund would be used to smooth 'irrational market movements'. The market yesterday tumbled 6.67 per cent.

'The no-action seemed reasonable ... there will be more declines in the next few days and they shouldn't waste the bullets,' one fund manager said.

Mr Carroll cheered the decision not to deploy public funds to prop up the market, a move used after Mr Chen's election in 2000.

The first trading day after the 2000 election saw a 2.7 per cent fall in the market before the fund intervened to boost the market.

'We think they were quite clever [yesterday] in letting the market run its course,' he said.

Any bet on a rapid economic recovery is closely tied to global economic demand, in particular the semiconductor sector, which many analysts reckon is headed for a downturn after last year's strong rebound.

That in turn should feed into a domestic economy still blighted by depressed asset values stemming back to the early 1990s bust.

'A lot of the momentum in domestic demand going into the election will remain unless this crisis is particularly bad and not resolved within weeks,' Mr Carroll said.

Mr Lu predicted a fall of at least 5 per cent in today's session, with the possibility of a technical rebound tomorrow and further losses later in the week.