Taiwan Top Fund Manager Sees Rally Toward Record Before Vote

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Taiwan’s benchmark stock index may rally 15 percent to approach a record this year as earnings prospects and a presidential election in January lure foreign funds, according to the island’s third-best performing money manager.

The Taiex index will probably touch 12,000 by October or November before paring gains in the fourth quarter, said Tony Chen, a vice president at Schroder Investment Management (Taiwan), whose small-to-medium cap fund returned 15 percent this year. Profit growth will be driven by foundries, chip packagers and financial stocks, he said.

The Taiex climbed to a 15-year intraday high of 10,014 on April 28, buoyed by new rules curbing corporate bond holdings of overseas investors and the prospect of an exchange link between Taiwan and China. The gauge’s previous record at 12,682 was in 1990. Global investors bought $7.8 billion of Taiwan shares this year, data compiled by Bloomberg show.

“Strong gains in China and Hong Kong stocks may push Taiwan stocks higher,” Chen said in an interview on April 30.

Economic growth in Taiwan accelerated in the first quarter to 3.46 percent as corporate earnings and private consumption improved on the back of demand for products made by the island’s companies.

Earnings Estimates

The Taiex slid 0.3 percent to 9,820.13 at the close on Tuesday and is up about 5.5 percent so far this year. Profits in the gauge are projected to climb 15 percent in the next 12 months, data compiled by Bloomberg show. That compares with forecast gains of 12 percent for the MSCI All Country World Index.

Listed companies may post about 10 percent earnings growth, Chen said. Financial firms, which reported first-quarter results surpassing analyst estimates, usually benefit from government policies such as stock-boosting measures from the Financial Supervisory Commission, he said.

Taiwan will hold an election on Jan. 16 to select its next president as well as lawmakers. The opposition Democratic Progressive Party has nominated its chairwoman Tsai Ing-wen as the party’s presidential candidate, while the ruling Kuomintang has yet to nominate anyone.

To be sure, the Taiex may struggle to breach the 10,000 level because of elevated valuations, Peter Kurz, an analyst at Citigroup Inc. wrote in a report dated April 28.

10,000 Level

“We don’t see any strong argument for the market to break the 10,000 level quite yet unless the Shanghai and Hong Kong markets continue to surge, Kurz said. ‘‘We would rather expect the market takes more time to consolidate just below the 10,000 level before making a sustainable break-out.’’

Chen manages the Schroder Lohas Small and Mid Capital Fund, Taiwan’s third-best performer this year among local stock mutual funds, with NT$643.9 million ($21 million) in assets under management as of March 31. Chen’s top holdings at the end of February were Elite Material Co., Largan Precision Co., Catcher Technology Co., Swancor Ind Co., and Taiwan Semiconductor Manufacturing Co.

Chen said he holds as much as 18 percent of the fund’s assets in cash, which he may cut to as little as 10 percent in the second quarter, when the Taiex may decline to 9,500 during the ‘‘low season” for the technology industry. The money manager said he is avoiding display panel makers as well as DRAM, or dynamic random access memory, shares.