A lack of news to drive investors' interest and the anticipation of consolidation ahead of the Chinese New Year holiday conspired to keep the market under wraps last week.
After climbing 3.9 percent in the Jan. 10 to Jan. 15 period, the TAIEX edged up slightly last week to 9,255.94, or 0.7 percent higher. But the Over-the-Counter index put in a sizzling performance, rising 3.5 percent last week to 234.85.
"There wasn't too much news in relation to electronics counters, and that's why you haven't seen much movement," said Naiwen Kerr, assistant vice president of Taiwan International Securities.
As a result, "Some non-electronics companies have had a chance to perform," Kerr said. He noted that turnover in electronics had fallen to between 62 percent and 65 percent of the market's total last week, compared to 70 percent in the previous week.
Investors turned their interest to companies such as President Chain Store (
But while none of the aforementioned companies are technically considered high-tech firms, they are considered technology plays for their telecom holdings or -- in the case of President -- for its e-commerce ambitions.
Grace Li, research manager of MasterLink Securities, said investors have been focusing on the government's cautious approach to the stock market's recent gains. Of particular concern is the actions of China Development Industrial Bank (中華開發工業銀行), which has been paring back holdings.
"People always take the company's actions as one of the important factors to watch," Li said.
She said CDIB could be selling "so they can realize their gains." Also, the selling may be a warning that stocks are appreciating too fast. "They want the market to watch their actions, to get the hint," Li said.
Still, foreign institutions have continued buying, and "that's important for investors' confidence," Li said. Last week, foreign institutional investors bought a net NT$12 billion in shares. For the year, these investors have been net buyers of NT$27.3 billion in shares.
Li also noted that petrochemical firms continued to perform well, despite periodic bouts of profit-taking. "Stock prices are expected to trend up in the weeks to come," she said, "so that gives investors the confidence to hold."
Spot prices for styrene monomer soared to about US$815 a ton last week, up from US$710 earlier in the month. The steep rise has benefited Taiwan Styrene Monomer, which rose 13.4 percent last week to NT$59; and Grand Pacific Petrochemical, which rose 19.9 percent to NT$30.1. For the month, the companies are up 34 percent and 46.8 percent, respectively.
Also benefitting was Formosa Chemical and Fiber Corp (
In the coming week, Kerr said, the TAIEX could trade between 9,000 and 9,500, and possibly in the tighter range of 9,000 and 9,350 if liquidity dries up. As the Chinese New Year approaches, the demand for cash for bonuses and red envelopes will increase, leaving less money for stock purchases.
"It's well known that the Taiwan market is a liquidity driven market," Kerr said. "Without liquidity, the market can do nothing."
Kerr also said that any drop in the market could bring out the bargain-hunters.
In addition, some retail investors may bet the market will open higher -- or "open with red" (
If the New Year "opens with red," it is said to be a good indicator of the market's performance for the year.
Rising capacity for ritek
News that Ritek Corp (
Although Ritek jumped 4.41 percent to NT$213 last Monday after the company announced it plans to buy Seantram Technology (信群) and AMS Technology (智碟), shares ended the week at NT$202 -- or 0.9 percent lower than their Jan. 15 close.
"There has been a global trend for companies competing in the same market to merge to achieve economies of scale," said Gordon Yeh, president of Ritek, in a prepared statement explaining the acquisitions.
After the mergers, Ritek will have production capacity of roughly 150 million units per month, or about 37 percent of global output. Sales jumped to NT$14.3 billion last year, or 162 percent higher than 1998.
But while the mergers may give Ritek a leading position as a manufacturer of recordable optical discs, analysts are mixed about the company's prospects.
"People are watching their new products," Li said, and that may explain some investor enthusiasm. Newer products often mean higher margins.
But "keep in mind prices for their major product is not optimistic at all," Li said.
Kerr said unit prices for recordable compact discs have fallen by 20 percent to US$0.57 in December and could drop further to as little as US$0.45 per unit.
"We fear a price war has begun," he said. "I think the company's bottom line is going to be heavily eroded."
Still, Ritek does have its supporters. Two investment houses -- Jardine Fleming and ABN AMRO -- recommend Ritek as a "buy."
In a recent investment note to investors, Jardine Fleming notes that the company's expected compounded average growth rate for this year and next is roughly 100 percent.
"We anticipate increased retail investor interest in the share to be piqued by new product introductions and an aggressive production ramp in 2000," the investment house wrote.
In addition, Jardine Fleming notes that Ritek trades at a significant discount to its peers. At NT$202, the company is trading at roughly 15 times estimated 2000 earnings of NT$13.4 per share. That's compared to an average 26 times earnings for other companies in the electronics industry.
"We strongly reiterate our `buy' recommendation on Ritek as we believe the market has discounted risks in this sector far too heavily," Jardine Fleming said.
As of Friday, Ritek was 10.6 percent off its 52-week high of NT$226 reached on Sept. 6.
Meanwhile, Ritek also has diversification plans. According to the company's Web site, Ritek is developing a software and networking business, although no details have been made available.
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