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Analysts cautious about TAIEX's continuing boom

The equity market was expected to experience sustained rising impetus this week, backed by anticipations of strong sales by high-tech exporters and continuous robust capital momentum after weeks of buying sprees.

Yet, the limited upside after a long rally and possible downturn of stocks that has reported less ideal profits for the first half could become investment uncertainties, analysts said.

"The TAIEX could continue to strengthen to the 9,700 mark, while seeing support at 9,200 [this week]," an equity research team of IBT Securities Co (台灣工銀證券) said in a report released over the weekend.

The high-tech industry's traditional high season began earlier than before, which would greatly benefit local electronics makers, the team said, citing the US National Retail Federation's forecast of a record 13 percent increase in demand for electronics goods in the US' back-to-school sales in September.

Foreign investors' continued buying, favorable government policies, plus estimated payout of a combined NT$800 billion (US$24.4 billion) in dividends by listed firms, would collectively contribute to a bull market in the local stock exchange, the report said.

The TAIEX gained 112.59 points, or 1.17 percent, to close at 9,585.90 on Friday on turnover of NT$221.92 billion, marking a new seven-year high in the wake of 10 straight weeks of advance.

However, a plunge in the US stocks on Friday, with the Dow Jones Industrial Average losing more than 149 points, or 0.4 percent to close at 13,851.08, could cast uncertainty on Taiwan's markets when they open today.

Investors may need to be more cautious as the TAIEX could see shrinking short-term upside or consolidation following a long surge, IBT Securities said, adding that buyers should avoid companies that did not report bright sales during the first six months of this year.

Henry King (金文衡), head of Taiwan equity research with Goldman Sachs, said last week that the industry fundamental and liquidity momentum remain healthy in the current quarter, but the risk of a correction was rising following the 15-percent jump in the TAIEX over the past month.

He appeared cautious about the market outlook for fourth quarter, citing several factors which could dilute profitability per share, including vendors' overdue optimism without considering consumers' budget constraint, buyers' holding back before rollout of new products, possible inventory pileup and the implementation of employee bonuses next year to dilute profitability per share.

Despite the fact that some analysts are positive that the TAIEX could hit 10,000 points during the current quarter, King said picking the right stocks was more important than the surge scale of the index.

Goldman Sachs recommended nine high-tech stocks, including Compal Electronics Inc (仁寶電腦), Asustek Computer Inc's (華碩電腦), MediaTek Inc (聯發科) and High Tech Computer Corp (宏達電).

It also liked Chinatrust Financial Holding Co (中信金控) and Chang Hwa Bank (彰化銀行) on a merger and acquisition story, and insurance stocks on strong core business growth and contribution of investment return to their bottom lines.

In the non-tech sphere, Macquarie Securities said last week that they prefer President Chain Store Corp (統一超商) and E-Life Mall Co (全國電子) because of their market share growth.
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