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Updated Monday, December 27, 2010 10:55 am TWN, The China Post news staff

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TAIEX unlikely to top 9,000: analysts

With Taiwan stocks closing for the year this Friday, most analysts have expressed the view the TAIEX is unlikely to top 9,000 by that time.

The weighted index closed at 8,861.1 on Friday, down 37.77.

According to the experts, there is a chance the central bank will raise its key rates during its quarterly meeting this Thursday, following in the footsteps of the People's Bank of China (PBC), which raised its key rate by 0.25 percent Saturday.

However, the rate hike will not be by a big margin, given the lack of inflationary pressures in Taiwan and economic uncertainties lingering in the global markets.

Rather, the central bank should be more concerned with how to rein in property price increases, experts said.

Most analysts agree that the central bank will raise the key rates by half of a base point, or 0.125 percent. The move is expected to result in an influx of foreign capital into Taiwan, and another wave of appreciation for the New Taiwan dollar.

If that were the case, electronics firms will take a hit as their products become less competitive in the international market, in the midst of a rising New Taiwan dollar. Their stocks, which account for a huge portion of the Taiwan Stock Exchange, are therefore expected to drag down the TAIEX.

“A rise in interest and exchange rates is somewhat detrimental to exports,” said Chen Chung-jui, chairman of Ray Wing Research and Investment Corp. “Yet for the long term, a rise in interest rates will bring more capital to Taiwan and is positive for the equity market.”

According to Liu Kun-hsi, general manager of Masterlink Securities, while the TAIEX is nearing 8,900, reduced trade volume is still a concern among investors.

“It's unlikely the TAIEX will reach a high during the year's final week of trading. It will probably hover near the 8,800 area during the week,” he said. “Afterwards, the TAIEX is expected to rise slowly, under the precondition nothing major happens in Chinese stocks.”

Liu recommends stocks with Chinese themes or domestic demand-related themes. Chen, meanwhile, picks asset, construction and financial stocks, which will benefit from increased interest rates.

Li Fang-kuo, general president of President Securities Corp., meanwhile held a more optimistic view for Taiwan stocks, saying the TAIEX will rise above 9,000 by the end of the year on increased purchases by institutional investors.

As for exchange rates, analysts expect the New Taiwan dollar to challenge the NT$29.5 level during mid-trade this week, yet said the currency will fall back to below NT$30 at the end of trade, as has been the case over the past weeks.

Separately, local analysts yesterday offered their views on the Chinese rate increase, saying the move was hardly any surprise.

“China's inflationary pressures are simply too high,” said Chou Chi, Dean of School of Economics at Shih Hsin University.

Polaris Research Institute, meanwhile, said China is expected to launch more austerity measures next year if the current rate increase did not effectively lower price.

Should China's tightened monetary measures go wrong, they may lead to slowed economic growth worldwide and may be a threat for Taiwan, Polaris said.

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