Taiwan Stocks Seen Falling by Double Digits on U.S. Rates Rise

  • Taiex could end the year as low as 6,500, says Cathay Futures
  • Decline would represent a 24 percent drop from current levels

Taiwan’s benchmark stock index could fall as much as 24 percent by the end of the year, according to a senior executive at the island’s biggest publicly traded financial services company.

The Taiex Index may end the year in the 6,500 to 7,500 range, Anderson Chien, executive vice president for sales at Cathay Futures, a unit of Cathay Financial Holding Co., said in an interview. The impact of expected U.S. interest rate rises by the Federal Reserve will reverberate around the world and hurt places such as Taiwan where the international value of domestic assets may decline as a result. The Taiex closed Wednesday at 8,597.16, up 3.1 percent this year. The index was last at the 6,500 level in July 2009.

“The Fed’s rate hikes before year end will tighten liquidity in the stock market,” Chien said. “You don’t know when money will be pulling out of stocks.”

Chien forecast that the Taiex would approach 9,000 before starting to decline in the fall. Demand will be spurred by relatively high dividend yields coupled with low valuations, he said. The current yield on the Taiex is 3.9 percent, according to data compiled by Bloomberg. The dividend yield of South Korea’s Kospi Index is 1.7 percent, the data show. Taiwan’s main index has a price-earnings ratio of 15.2 compared to the Kospi’s 16.8.

A rise in the Taiex is likely to be led by biotechnology companies, said Chien, in part because the sector is favored by the incoming government. New President Tsai Ing-Wen is expected to increase funding in the industry to provide a boost to Taiwan’s economy. OBI Pharma Inc., TaiMed Biologics Inc. and United Orthopedic Corp. are among the companies Chien said could rally.

A Bloomberg survey of fund managers and analysts last month found that the consensus view was that the Taiex’s rally will peter out as slowing earnings and uncertainty over relations with China counter speculation about demand for Apple Inc.’s newest iPhone. The median estimate of respondents was for the index to end the year at 8,650.

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