FUND managers are divided about the wisdom of investors bargain-hunting in the Taiwanese stock market. Recent mainland missile testing and domestic financial scandals have scored a direct hit on the market, pushing it below 5,000 points. Some managers argue that prices are cheap enough to start venturing back into Taiwan in order to build long-term capital stakes. Others believe the market could continue to languish at about present levels and urge caution. Taiwan's stock market is dominated by highly active domestic investors, who have helped to produce some of the most spectacular gains and losses recorded on any market. For example, between 1988 and 1990, the index quadrupled, then fell dramatically in seven months from a high of 12,495 to a low of 2,560. The past 12 months would have tested the commitment of the most stalwart investors. An investor who placed US$1,000 in the top-performing fund, Invesco Taiwan Growth, would have seen his capital shrink by just over $200. Those in the worst-performing, Jardine Fleming Taiwan Trust, would have seen a loss of about $320. Three-year performance has also been modest, with the best, Thornton Taiwan Equity Growth, adding $250 to the initial outlay while the worst has risen by just $29. George Hou, manager of Jardine Fleming Taiwan Trust, warned: 'Without seeing a political dialogue, I think it is hard to see a turn-around.' Mr Hou said the textiles and petrochemicals sectors had already been hurt by the mainland's austerity drive. The banking sector was not doing well, and electricals, a strong growth sector, had seen its debt burden increased as a result of the widespread issuing of eurodollar convertible bonds. Mr Hou said: 'The overall attitude is cautious.' David Curl, a fund manager with Regent Fund Management, believed Taiwan and South Korea had the strongest earnings potential in the region. Mr Curl, who is bullish about Taiwan's petroleum and electronics sectors, was looking for a market bounce of between 30 and 35 per cent. He believed the economic interdependence of Taiwan and China would limit the prospects of long-term political fall-out. Sam Lau, associate director of Invesco and manager of the Taiwan Growth Fund, said: 'Local investors are nervous while foreigners are relaxed. I do not think there is anything economically that is being reflected in the market.' Diahann Brown, manager of the Taiwan Equity Income Fund, said: 'A hell of a lot of the bad news has been discounted. Between 4,300 and 4,500 points it is extremely cheap - one of the cheapest in Asia. But it will not be a straight-line recovery.'