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SCMP Reporter

There may have been a few smiles on the faces of Merrill Lynch's Asia strategy team on Friday as Taiwan's Weighted Index moved to a five-month high, sitting firmly above the 9,000-point mark.

 In mid-December last year, Merrill picked Taiwan as one of its favoured Asian markets over the coming 12 months. That call seems to have paid off, at least so far.

 The index, which added a further 51.33 points on Saturday, has risen for six consecutive sessions. The market has risen 11.01 per cent this year, and Merrill is one of many houses saying there could be more gains in store.

 The bulls point to the island economy's relative resilience amid the region's financial turmoil over the past seven months, and say that the crisis may have enhanced the competitive standing of many Taiwanese firms.

 A great deal of the excitement centres on the technology sector, which accounts for about 30 per cent of market capitalisation.

 The desktop and notebook computer makers underpinned the market's gain last year on growing demand and solid profit growth. The optimists say that this year could see a repeat of those advances.

 ABN-Amro's Taiwan team, headed by Eddie Wong, recently upgraded its first-half forecast for the lead index by about 4 per cent, to 10,000 points from 9,600.

 'It is gradually dawning on investors that Taiwan is set to emerge as a winner from the recent regional financial turmoil. Taiwan is the only [economy] in Asia with the ability to export capital and expand regionally on the back of a sound domestic financial system, a healthy trade balance and strong corporate management,' ABN-Amro said.

 The house pointed to Taiwan's 'new-found economic leadership', arguing that Taiwan corporates would soon be picking through the wreckage of many neighbouring economies, buying up bargains to drive future expansion.

 Last year, as the shock waves from the devaluation of the Thai baht hit the Asean economies and worked their way through Hong Kong into Northeast Asia, Taiwan came through largely unscathed.

 Between late August and December, the stock market dropped almost 20 per cent from its year-high, but over the 12 months, however, it was still 18.07 per cent ahead.

 The Taiwan dollar, partly shielded by restrictions on convertibility, fell just 15.6 per cent against the US dollar between July last year and the middle of this month. The drop was in line with the Singapore dollar, which fell 14.1 per cent in the same period, but far less than most other Asian currencies.

 Bank of America managing director of Asian research Andrew Freris said Taiwan's resilience stemmed from its strong external financial balances, solid banking sector and the innate flexibility of its manufacturing and export sectors.

 He said small and medium-sized firms dominated, which helped companies to avoid the excess high leverage and dependence on bank loans, which characterised the conglomerates in South Korea.

 This year's gross domestic product growth is put at 6 per cent, not too far off the average 7.2 per cent over the past decade.

 'As the forex crisis in Asia draws to a close, Taiwan will be in a strong position and able to claim its mantle as a haven in future periods of instability,' Mr Freris said.

 Salomon Smith Barney says it is holding its overweight position on Taiwan, in part because of its currency's firm standing.

 'Taiwan is the only market that would qualify for a 'growth market' label in the current poor environment for corporate earnings growth,' it said.

 Technology stocks have remained in vogue. In part, the sector has benefited from the climb of the US Nasdaq Index, which is dominated by technology firms. The US indicator finished the week at 1,728.13 points, just a shade shy of its record close of 1,745.85, set in October last year. That record may tumble this week.

 Acer, Taiwan's premier personal computer maker, was picked by Goldman Sachs as one of its favourite stocks for this year.

 'We expect 85 per cent earnings growth in 1998 due to strong underlying growth in Acer's core PC manufacturing business, combined with turnarounds at both its loss-making Dram and US distribution subsidiaries,' analyst Lucas Ward said.

 Acer shares closed on Saturday at NT$72, (about HK$16.95) up 40 per cent this year.



Resilient Taiwan finds favour with bulls