Taiwan markets set to rally after KMT poll win

By Lee Chyen Yee

TAIPEI (Reuters) - Taiwan's markets may rally in the coming week on prospects of improving trade ties with China after the main opposition Nationalist Party (KMT) won by a landslide in the presidential election.

Analysts expect the TAIEX index to gain more than 5 percent during the week from Friday's 8,524.99 points, a two-week closing high.

They also see the Taiwan dollar firming towards T$30 to the U.S. dollar from Friday's T$30.550, an eight-year closing peak, after rallying more than 5 percent this year.

Both markets had gained significantly over the past week or so in the run-up to the elections, as investors had bet on a win by KMT's Ma Ying-jeou, who favors deeper business relations with China.

China is Taiwan's favorite investment destination and its top trading partner despite political rivalry. China has claimed Taiwan as its territory since the end of the Chinese civil war in 1949 and has threatened to bring the island under its control -- by force if necessary.

"Ma's victory will help boost market sentiment substantially, sending the main TAIEX index to around 9,000 points next week. Most foreign investment institutions have underweighted Taiwan stocks for years," Jim Chang, president of AIG Taiwan's fund unit.

"There will still be many problems ahead as Taiwan will need to negotiate with China and issues, such as direct flights, won't happen so quickly. At the same time, the U.S. economy is not doing well so we have to return to fundamentals," Chang said.

SOME CAUTION

The benchmark stock index had gained 6.5 percent since mid-January when the KMT won a more than two-thirds majority in legislative elections, helping the party build momentum for Saturday's poll.

"Foreign investors appear to have positioned a significant amount of 'cash on the sidelines' to put to work in event of a positive outcome in the March 22 presidential election," JPMorgan said in a note before Saturday.

It added that foreign investors had remitted a net $11.8 billion into Taiwan in the year through March 7 and had bought a net $2.5 billion in the island's equities, with possibly another $5.7 billion entering the market later.

The KMT'S dominance in the parliament and cabinet will make it easier for the government to push ahead with policies that will help boost the economy after years of stalemate due to constant bickering in a once-divided legislature.

Investors are expected to continue to buy into China-related plays, such as the financial, tourism and construction sectors, analysts said.

However, some sounded a note of caution.

"Many Taiwan stocks, such as property shares and airlines, have risen sharply on expectations that the Nationalist Party would win," said Taiwan native Weimin Chang, an executive at a Sino-foreign fund management company in Shanghai.