In the wake of Saturday's elections, fundamentals are now key to the nation's stock market, with high-tech and financial shares the ideal investment picks, foreign investment banks said in their latest reports.
"We have been positive on the TAIEX since end-October, believing that the market will reflect more of the fundamental improvement and be less sensitive to political noise," Sophia Cheng (程淑芬), head of research at Merrill Lynch Taiwan, said in a report released on Monday.
Cheng recommended technology and financial stocks based on the tech sector's strong revenue and profits, and the financial sector's discounted valuation.
Transportation stocks also provide opportunities given expectations that the government may make changes to its cross-strait policy, but a rebound in the shipping sector could be short-lived, given potential intensified price competition, she said.
Recommendations in the high-tech segment included Taiwan Semiconductor Manufacturing Co (TSMC,
The TAIEX yesterday closed up marginally, by 2.21 points or 0.03 percent, at 6,350.52 on turnover of NT$114.2 billion (US$3.41 billion). The benchmark index marked a 16-week high at 6,348.31 on Monday after Saturday's local government elections.
The opposition won the majority of posts in the polls, sparking expectations that the Democratic Progressive Party (DPP) government will adjust its cross-strait policy and seek closer ties with China.
Against this backdrop, ABN AMRO Asset Management Taiwan said yesterday in its latest report that the bull market is expected to continue and boost the TAIEX to exceed this year's peak of 6,481.62 by the year's end.
The company said that the local bourse's relatively small rise of 5 percent this year -- in comparison with the average 20 percent to 30 percent increases in foreign markets -- and a weak NT dollar will drive continued foreign capital inflow.
By the same token, CLSA Ltd yesterday raised the weighting of Taiwan's market in its portfolio by four percentage points to 22 percent, Bloomberg reported, citing Christopher Wood, CLSA's Jakarta-based Asian strategist.
Merrill Lynch expects a further relaxation of China policies next year, as a scheduled Economic Development Advisory Conference will likely emphasize cross-strait issues, which the government will want to adjust in order to boost domestic confidence, Cheng said.
This should offer a short-term boost to market sentiment, but uncertainty over policy execution remains given complicated political considerations, the analyst said.
Jesse Wang (王嘉樞), head of research at BNP Paribas Securities (Taiwan) Co, said that he did not anticipate the DPP making any quick change of stance in its China policy.
To do so could jeopardize the party's identity, especially as it moves to restructure its leadership after the bitter defeat, he added.