Taiwan Fund Manager Sees 12% Rebound In Next In 2 Months

TAIPEI (Dow Jones)--After falling from seven-year highs in the past five weeks amid worries about second-half earnings at technology companies, Taiwan's main stock index is likely to rebound as much as 12% before the end of November, a senior fund manager said Wednesday. Albert King, manager of the $500 million New York-listed Taiwan Fund for China Securities Investment Trust Corp., said gains will be led by banks benefiting from brisk demand for loans and a likely new cut in the amount of deposits they have to hold as reserves. ''Banks have the biggest chance to gain'' in the next several weeks ahead of local elections to be held on Nov. 29, King said. Banks listed at the Taiwan Stock Exchange that are likely to outperform the main index are Dah An Commercial Bank and Grand Commercial Bank, he said. The main index of the Taiwan Stock Exchange continued its recent swoon Wednesday, losing 13.81 points to a three-month low of 8,695.02. The index has lost about 14% from a seven-year high of 10,116.84 on Aug. 26. The index has about bottomed out because of likely action by authorities to boost the market ahead of the local elections next month, in which the ruling Nationalist Party is facing one of its toughest challenges, King said. The Central Bank of China, Taiwan's central bank, is likely to try to boost the market and economy by following up on last week's cut in bank reserve ratios with another reduction, King said. ''It's likely that the central bank will cut the reserve ratio again in a month,'' he said. That would benefit stock prices in general by increasing the supply of lendable funds in the banking system and pushing interest rates lower, which in turn will make shares more attractive. The move would particularly help bank profits by providing a new source of cash for loans at a time when demand for bank funds among companies has been rising, King said. An increase in short-term rates in recent weeks in connection with central bank support of the New Taiwan dollar in foreign currency market has sent businesses to banks in search of medium-term funds. In August, loans to private companies by major Taiwan banks rose 10.3% from a year earlier, the biggest rise in 22 months, the central bank said. ''You have an environment of greater demand for loans and lower costs for funds because of the cuts in bank reserve ratios,'' King said. King also thinks selected technology shares will recover in the next two months as the companies' sales grow amid the industry's traditional peak season. The fund manager recommends chip-related stocks such as Taiwan Semiconductor Manufacturing Co. (Q.TSC), United Microelectronics Corp. (Q.UME) and Advanced Semiconductor Engineering Inc. (Q.ASE). The main index of the Taiwan Stock Exchange will climb to as high as 9700 points before elections for 23 local posts are held on Nov. 29, he forecast.