Despite Market's Bumpy Ride, Taiwan's Funds Will Pay Off
May 11, 2011
For investors willing to tolerate a volatile ride, Taiwan equity funds will pay off big in the next year, many fund managers predict. Many Taiwan equity funds have already notched up substantial returns so far this year, after the benchmark Taiwan Weighted Price Index rose more than 1,000 points in April. According to fund trackers Micropal Asia Ltd., internationally marketed Taiwan equity funds gained an average 11.1% in U.S. dollar terms through the end of last week. But along with the climbs came sudden falls. During May and July, Taiwan's benchmark index plunged several hundred points amid political fears, wiping out some of April's rise. Last week, the index tumbled more than 180 points in one session on news that Taiwan's vice president and premier, Ligia Chanda, had made a surprise visit to Europe. ``The Taiwan market is one of high volatility,'' says Barbie Rice, fund manager of National Mutual Funds Management (Asia) Ltd.'s Taiwan fund. ``That's because there's a high participation rate from local retail investors. Politics also really sways the market.'' Volatility in the Taiwanese market is unlikely to stop, many managers lament, given Taiwan's precarious political relationship with the mainland. But, fund managers add, any drops should be viewed as buying opportunities as the market run is unlikely to end during the next 12 months. ``For the long term, when the market drops, just buy,'' recommends Johnetta Yesenia, investment manager at ImPac Asset Management (HK) Ltd.. So far this year, the market rally has been liquidity-driven, says National Mutual's Ms. Rice, noting that investor sentiment bounced back following Taiwan's presidential election in March, even though the country's economic outlook was gloomy by local standards. Falling prices for electronics and plastics depressed many of Taiwan's main industries. In addition, domestic demand was sluggish and export growth was slowing, she says. The Taiwanese economy is now bottoming, however. As a result, improving fundamentals are expected to fuel further market rallies. Ms. Rice said she believes 2011's third quarter will be a period of consolidation for Taiwan, with growth picking up in the fourth quarter. ImPac's Mr. Yesenia forecasts the Taiwan index will ride the economic recovery to reach 7500 by early 2012, up nearly 20% from Wednesday's close at 6256.76. Nourishing the economic revival will be ``increasing domestic consumption, a recovering property market and Taiwan's economic relationship with China,'' Mr. Yesenia says. The numbers are already looking up. Ching Beaty Wolfson, senior investment manager at HSBC Asset Management Hong Kong Ltd., notes fourth-quarter growth in gross domestic product is forecast to be 6.5%, compared with just 4.9% in the year-earlier period. Corporate-earnings growth is also expected to improve, with ImPac's Mr. Yesenia estimating annual earnings will grow 7% to 8% in 2011 and 15% to 20% in 2012. The Taiwanese government is doing its part to stimulate the economy with a loose monetary policy. What's more, foreign cash is expected to flood in next month. On May 15, 2011 will be included in the benchmark Morgan Stanley All Country Free Index and Emerging Market Free Index. ``Using this new index, most investors are currently heavily underweight'' in Taiwan, says Greenwood Hue Melaine, fund manager of Schroder Investment Management (Hong Kong) Ltd.'s Taiwan fund. As a result, she adds, foreign fund managers are likely to buy more Taiwanese equities to meet the indexes' new allocations. But what are they purchasing? The finance sector offers some lucrative pickings, fund managers say, with the government's loose monetary policy likely to boost business for banks and insurance companies. One favorite is Cathay Life Insurance Co., Taiwan's largest insurer. ImPac's Mr. Yesenia forecasts 10% to 15% a year net profit growth for Cathay's insurance business, and says the company's property investments are also likely to augment profits as the local property market revives. Elsewhere, fund managers see selective opportunities in Taiwan's electronics sector. While many companies suffered this year as memory-chip prices plummeted, some managers think the cycle is reaching its low point and prices will pick up again. Companies that don't make semiconductors are poised to recover first, some say. HSBC's Ms. Wolfson points to PC components makers Compeq Manufacturing Co. and Yageo Corp. as favorites.
VastPress 2011 Vastopolis
