Taiwan stocks are set to climb to a new 41 month high this week, led by technology, banks and cyclicals as improving corporate earnings outlook and pre-election optimism outweigh recent weakness on Wall Street.
A stronger US dollar, which has pulled the local dollar down from a 19 month high on February 18, is also seen as helping Taiwan's export-focused companies.
The Taiwan share index TAIEX, which closed last week at its highest level since September 2000, could rise as high as 7,000 points before presidential elections on March 20, Chris Wang, deputy manager of Barits International Securities Co, said.
The index rose 1.3 percent last week to 6,750.54, extending gains for a fourth straight week. It has risen almost 15 percent since the beginning of the year.
"Take a look at the recovering economies and abundant liquidity and you will see that a long-term upward trend hasn't changed," said Kevin Lin, who helps manage US $580 million at Shinkong Investment Trust.
A pick-up in domestic demand, which is expected to replace exports this year as the primary driver of growth, will add to the upbeat sentiment, analysts said.
Last week, Taiwan raised its 2004 economic growth forecast to 4.7 percent from an earlier estimate of 4.1 percent amid a rise in domestic consumption, while analysts expect the government to announce market-friendly measures ahead of the balloting.
"Both the ruling and opposition parties probably will tell investors more good news as the election looms," Wang said.
In an apparent move to solicit votes in a tough battle for re-election, President Chen Shui-bian said last week the government was considering scrapping a restrictive rule on insurance companies hoping to invest in China.
Recent Taiwan opinion polls show Chen and opposition candidate Lien Chan running neck-and-neck for the election.
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