Share prices are expected to strengthen after the Lunar New Year holiday amid ample liquidity, as funds continue to flow on appreciation of the local currency, dealers said yesterday.
A significant reduction in margin trade was also likely to stabilize the market after the recent consolidation, they said.
Domestic demand sectors would benefit from the capital inflows, while the rising NT dollar could hurt the electronic sector, Taiwan's major exporter.
Aided by rising fund positions, the market was expected to challenge the crucial 8,000 point level next week, while any technical downturn could see support at about 7,500 points, dealers said.
The markets have been closed this week due to the Lunar New Year holidays.
For the week to Feb. 1, the weighted index closed down 65.60 points or 0.85 percent at 7,673.99 after a 5.44 percent decline a week earlier.
Average daily turnover stood at NT$111.35 billion (US$3.48 billion), compared with NT$140.16 billion a week ago.
Trade will resume on Tuesday.
"The market became healthy technically after the rally [on Feb. 1]. I expect the momentum to continue after the holiday on the support of constant fund inflows," Concord Securities (康和證券) analyst Allen Lin said.
Lin expected daily turnover to expand in line with higher liquidity while the amount of margin trade was down.
Lower margin trade value "could be a plus for the market to further gather momentum, pushing the index higher to test 8,000 points in the week," Lin said.
Analyst Alex Huang (黃國偉) of Mega Securities (兆豐證券) agreed, saying recent consolidation has made the local market attractive in terms of valuations. He prefers financial, construction, tourism and retail sectors which emphasize domestic demand and are unlikely to be affected by a stronger NT dollar.
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