TAIEX in pre-holiday limbo, but OTC skyrockets

"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" (開紅盤) -- when trading resumes after the long New Year holiday. As a result, some investors may want to get in early and start their buying in the last few days of trade before the holiday begins.

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 (錸德), maker of recordable compact discs, plans to acquire two competitors and boost production capacity by 40 percent failed to inspire investors last week.

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.