South Korea and Taiwan will gain from the upturn in hi-tech spending, say analysts Strong demand for high-technology goods such as semiconductors and computers, coupled with sustained liquidity inflows into north Asian markets, should continue to benefit Taiwan and South Korean equities. Taiwan's Weighted Index has climbed 35.56 per cent this year as United States firms such as Hewlett-Packard, which accounts for 10 per cent of the island economy's exports, step up orders. Rival South Korea, which competes with Taiwan for a share of the global information-technology market, has seen its Korea Composite Index increase 23.81 per cent this year. State Street Global Advisors portfolio manager Brad Aham said the gains should continue as global fund managers sought out higher returns in north Asian markets. 'As long as interest rates remain low, there will be abundant liquidity into the area,' Mr Aham said. He said Taiwan was his biggest bet, noting the island's high-technology manufacturers stood to benefit from the cyclical upturn in corporate IT spending. Shares in Taiwan's two biggest firms, chipmakers Taiwan Semiconductor Manufacturing Co and United Microelectronics Corp, have gained 76.2 and 54.78 per cent respectively this year as the semiconductor industry emerges from a slump that began in mid-2000. Another benefit would be inflows from global fund managers as they devote a greater portion of their portfolios to Taiwan equities to match anticipated changes to indices managed by Morgan Stanley Capital International (MSCI). MSCI is expected to fully weight Taiwan shares over the next 12 months after the government scrapped its qualified foreign institutional investor (QFII) programme. Taiwan shares are now weighted at 55 per cent in the company's indices because the scheme had made it difficult for global investors to buy Taiwan equities. According to Peter Kurz, the chief executive of investment at advisory firm Insight Pacific, an estimated US$30 billion will pour into Taiwan over the next year in anticipation of the MSCI changes. These inflows will help boost the Weighted Index by 18 per cent. 'As the clients and [chief investment officers] of fund managers become more aware of Taiwan's opening, combined with greater recognition of Taiwan's position in the Greater China economy, the pressure on international fund managers to raise their weightings in Taiwan will grow,' Mr Kurz said. Mr Aham said the timing of the MSCI reweighting had yet to be confirmed but fund managers should begin to adjust their portfolios now. MSCI will probably take a wait-and-see approach, observing whether the scrapping of the QFII system had made it easier for global fund managers to invest in Taiwan before adjusting its weighting. As for South Korea, Mr Aham expected a pull-back next year. According to JP Morgan strategist Adrian Mowat, currency gains in Taiwan and South Korea will offer additional upside for investors in the two economies' stock markets. A rise in the South Korean won, for example, would make Korean shares more valuable on a US dollar basis even if they remained flat over the next year. He estimated the won would strengthen 13 per cent next year, while the Taiwan dollar would gain 11 per cent.