Taiwan Stocks to Extend World’s Third-Best Rally, JPMorgan Says

By Chen Shiyin

March 18 (Bloomberg) -- Taiwan’s Taiex stock index, the world’s third-best performer this year, may gain as much as 18 percent by end-2009 on the prospect of increasing trade with China, JPMorgan Chase & Co. said.

The index may rise to 6,000 by Dec. 31, after fluctuating between 4,200 and 5,000 in the first half as the global recession continues to weigh on earnings, JPMorgan analyst Nick Lai wrote in a report today. Investors should be “overweight” on technology companies, Lai said. The Taiex rose 0.5 percent to 5,064.48 as of 10:02 a.m. local time.

The index has jumped 10 percent this year, lagging behind only China and Venezuela among the 89 global stock gauges tracked by Bloomberg. Taiwan’s market has rebounded as relations warmed with China, its biggest trading partner, after Taiwanese President Ma Ying-jeou took office last year. The mainland claims the island as its territory.

Trade talks between Taiwan and China “will become an important source of growth for the Taiwan economy in the medium to long term,” Lai said. The “results season in April could be poor, which however provides a buying opportunity,” Lai added.

JPMorgan’s top stock picks include MediaTek Inc., Taiwan’s largest chip designer, which has rallied 40 percent this year and Silitech Technology Corp., a handset keyboard maker, which has jumped 50 percent. Taiwan Cement Corp., the island’s largest supplier of the material, has gained 5.6 percent.

Exports, Economy

Taiwan’s exports fell for a sixth straight month in February, the longest losing streak in seven years. The economy contracted 8.36 percent last quarter, pushing the island into its first recession since the dotcom bubble burst in 2001.

Chinese Premier Wen Jiabao said this month the nation wants to accelerate normalization of trade relations with the island and create conditions for ending the state of hostility. Direct daily flights, shipping and postal links between China and Taiwan started in December.

The island has been ruled separately since Chiang Kai- shek’s Nationalist army retreated there in 1949 after being defeated by Mao Zedong’s Communist forces.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net