SINGAPORE: Taiwan's stocks will offer one of the best returns in Asia next year as corporate earnings improve with warming cross-Straits relations, according to Allianz SE.

The economic cooperation agreement with the mainland will allow Taiwan's companies to expand beyond their home market, boosting the outlook for profits, said Nikhil Srinivasan, who oversees about $25 billion as Singapore-based chief investment officer for Asia and the Middle East at Europe's biggest insurer.

"Taiwan is a buy story as the economic and commercial assumptions from cross-Straits ties are positive for the market," he said in a phone interview yesterday. "Asian markets will rely on company earnings beating expectations in 2010 as good year-on-year economic data in the first half of 2010 is mainly discounted."

The island's stock exchange is set to attract its biggest annual fund inflows in three years as net purchases of stocks by global investors reached $11.3 billion through October, according to data from the Taiwan bourse. The benchmark Taiex Index has gained 60 percent this year to 7,322.93, heading for its biggest rally since 1993.

China Airlines and EVA Airways Corp, Taiwan's two largest carriers, last week posted third-quarter losses that narrowed after the carriers added flights to the mainland, offsetting a global slump in international passenger and air-cargo demand.

Taiwan's exports fell at the slowest pace in 11 months in September on improved demand for telephones, computers and electronic goods from the mainland. Shipments to the mainland, Taiwan's biggest overseas market, rose 2.1 percent from a year earlier, the external trade department said last month.

Taiwan and the mainland will begin talks on a trade agreement in December. "Once the agreement is signed, there's going to be a re-rating of Taiwanese stocks in terms of price-earnings multiple over the next 12 months," Srinivasan said. "The Taiex at below 7,000 is a buy. I would buy the index as a market call," he said.

Bloomberg News

(HK Edition 11/04/2009 page2)