UBS Sees ‘Milder’ Fourth-Quarter Taiwan Stocks Retreat

A pullback in Taiwan stocks this quarter will be “milder” than expected given increased liquidity, according to UBS AG, Switzerland’s biggest bank.

The brokerage raised its yearend forecast for the benchmark Taiex index to 7,600 from 7,200 and lifted its end-2011 target to 8,650 from 8,600, according to a report by William Dong. The Taiex slid 1.4 percent to 8,093.58 at 11:03 a.m.

“A low interest rate environment, a rise in net capital inflow and efforts to resist Taiwan dollar appreciation have led to a rise in liquidity, which is finding its way into the equity market, led by retail investors,” said Dong, head of the UBS Taiwan research team that was ranked second on the island by Institutional Investor this year.

The Taiex has retreated 1.1 percent this year, after jumping 78 percent in 2009 as Taiwan’s President Ma Ying-jeou helped cement closer ties with China by abandoning his predecessor’s pro-independence stance.

The Taiwan dollar has risen 3.9 percent this year. Central bank Governor Perng Fai-nan and his board increased the benchmark interest rate by 0.125 percentage point to 1.5 percent on Sept. 30, following a similar advance in June from a record- low 1.25 percent. Taiwan has no plans to impose a tax on inflows of “hot money,” Deputy Finance Minister Chang Sheng-ford said on Oct. 14, referring to short-term speculative capital.

Second-Half 2011

The brokerage expects further progress on cross-strait relations in the second half of next year, such as the opening of individual travel for Chinese tourists prior to the presidential election in 2012.

“We believe these initiatives could trigger positive retail sentiment and channel excess liquidity into the equity market in the second half of 2011,” said Dong.

Chinese visitors to Taiwan may exceed 1.2 million in 2010, against 972,123 in all of 2009, according to Yuan Kai-zhi, an official at the tourism bureau’s international division in Taipei. The figure may for the first time surpass travelers from Japan, forecast at 1.13 million this year, Yuan said.

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