Taiwan's Stocks May `Pull Back' During Fourth Quarter on Growth, UBS Says

Taiwan’s stocks may be set for a “pull-back” in the fourth quarter as growth slows in 2011 and as some of the island’s industries enter a “more mature phase,” UBS AG said.

The Taiex Index’s forecast retreat will offer investors a better opportunity to position for 2011, William Dong, an analyst at UBS, wrote in a report. He maintained his yearend estimate of 7,600 for the gauge and introduced a target of 8,600 for the end of 2011, according to the report.

The Taiex gained 0.7 percent to 7,985.40 as of 10 a.m. in Taipei, paring its decline this year to 2.5 percent. The measure rallied 78 percent last year on speculation increased trade with China will boost corporate earnings. Ties with the mainland reached their warmest since 1949, when Chiang Kai-shek’s Kuomintang, or Nationalists, fled to the island after being defeated by Mao Zedong’s Communists.

“In the short term, we expect the Taiwan market to continue to consolidate, given slowing macro indicators and our expectation of a below-seasonal trend in the second half of 2010,” Dong wrote. “For 2011, we expect a slow start in the first half, followed by a pickup in the second half.”

Taiwan’s gross domestic product grew 12.53 percent in the three months through June from a year earlier, the statistics bureau said on Aug. 19. The figure beat the 10.15 percent median estimate of 14 economists in a Bloomberg News survey. The economy may expand 8.24 percent for the full year before slowing to a 4.64 percent pace of growth in 2011, according to the statistics bureau.

‘Concentrated’ Growth

Growth may be “more concentrated” in certain industries, UBS said. For technology, there are “positive trends” for the so-called smartphone, light-emitting diode and touch-panel industries, while consumer companies could get a boost from an increasing number of visitors from China, the analyst said.

Taiwanese companies that conduct business with China can also benefit from higher growth in the mainland, according to the report. The island and China, ruled separately for six decades after a civil war, signed an Economic Cooperation Framework Agreement in June.

CLSA Asia-Pacific Markets last week advised investors to buy Taiwanese shares toward the end of the year or early in the first quarter of 2011, when stocks bottom. The Taiex may surpass its “key historical resistance” of 10,000 between 2010 and 2019, according to the brokerage, which has a short-term target of 6,800.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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