There are six months to go before Taiwan heads to the polls for presidential and legislative elections, but one analyst says investors should already position themselves to benefit from the pre-election equity rally expected to take place during the second-half of 2011.
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An investor checks stock prices displayed on the monitors at a securities firm in Yungho, Taipei county on March 24, 2009. Taiwan share prices closed up 2.3 percent on March 24 to a more than five-month high, tracking Wall Street's overnight rally and stronger regional markets, dealers said. The weighted index rose 118 points to 5,242.18, the highest since hitting 5,246.26 on October 15.
“If you look at the last three elections, in 2000, 2004 and 2008, 3 and 6 months before the election, Taiwan has always shown positive performance, and in most cases it outperformed the Emerging Markets Asia, ex-Japan Index,” John Brebeck, Taiwan Head of Research and Strategist at Yuanta Investment Consulting told CNBC Monday.
While Taiwanese firms are currently in the midst of the dividend season, which is typically negative for the country’s equities, he believes that liquidity conditions are already showing signs of improvement.
“The government is famous for trying creating positive conditions in the run-up to the election,” he said, adding that the government could inject NT$1 billion ($35 million) into the market via the country’s pension fund.
According to Brebeck, in such situations, shares of state-owned companies typically benefit because there is a perception that the pension fund will invest in them.
Brebeck believes leading corporate lender Mega FHC, which is 20 percent owned by the government, and state-owned Taiwan Fertilizer are plays that stand to profit from government buying.
A Change of Fortunes
While Brebeck is advocating greater exposure to the Taiwan market, there is one stock that he recommends staying clear of - smartphone maker whose shares have surged 64 percent in the last year. The company has been rattled recently by allegations of patent infringement by rival Apple.
While it is unlikely that HTC will be banned from selling its products in the United States, Brebeck said the company will likely need to redesign its products, which would lead to a delay in shipments and disrupt the introduction of new devices.
Yuanta Investment Consulting downgraded HTC from a “buy” to a “hold” on Monday and cut the price target for the shares to NT$1,020. It also cut HTC’s earnings-per-share (EPS) forecast by 5.4 percent for 2011.
“Given also that there are several more Apple cases pending against HTC, this could take a while to resolve and we don't see much upside for the share price in the near-term,” Brebeck added.
John Brebeck does not have any personal holdings in the stocks mentioned above.