Prudence and patience will be the keywords on the stock market this week given lingering concerns over Europe’s debt crisis and whether shares will stop falling, which hinges on signs of stabilization in European and US markets, investment strategists said.
Last week, the TAIEX dropped 534.42 points, or 6.88 percent, after a 2.71 percent rise a week earlier. The weekly decline was the largest since a 6.32 percent fall on Nov. 21, 2008, amid the US subprime mortgage crisis, Taiwan Stock Exchange data showed.
“The European credit crisis has triggered concerns about the pace of the global economic recovery and even raised speculation of a double dip [recession],” Jih Sun Securities Investment Trust Co (日盛投信) chief investment officer Chang Tao-lang (張島郎) said.
Chang said investors’ confidence has already collapsed and they were bearish about the outlook of nearly all financial products and currencies, except the US dollar and US bonds.
IN A HURRY
“Investors seem to be in a hurry to sell off what they have in their portfolios,” Chang said in an investment note on Friday.
That sell-off has brought the TAIEX down by 11.61 percent since the beginning of the year and down 13.39 percent from this year’s closing high of 8,356.89 on Jan. 15, stock exchange data showed.
Last week, the TAIEX also dropped below the psychologically important 52-week moving average (7,466), amid the continued pullout of foreign funds. The exchange’s data showed that foreign investors and Chinese qualified domestic institutional investors sold a net NT$37.93 billion (US$1.18 billion) of Taiwanese shares last week, following a net sale of NT$12.36 billion the previous week.
SALES THREAT
“The expanded net sales by foreign investors pose a threat to the local stock market,” Bevan Yeh (葉獻文), a fund manager at Prudential Financial Securities Investment Trust Enterprise Co (保德信投信), wrote in a note to clients on Friday.
Yeh said, based on past experience, once shares fall below the 52-week moving average it takes at least three months for the market to undergo a correction.
This year’s intra-day low of 7,080 points on the TAIEX, registered on Feb. 6, is now a key support level, he added.
Looking ahead, near-term market outlook would be subject to the strength of the euro and the fallout of Europe’s debt crisis, said Su Tai-hung (蘇泰弘), an investment manager with Taishin Securities Investment Trust Co (台新投信).
“If the devaluation of the euro continues, it will cause foreign-exchange losses to electronics makers that have higher exports to Europe,” Su said on Friday.
PERFORMANCE
Another point to watch is the performance of local electronics firms’ in the third quarter.
“If electronics companies’ new products fail to meet their sales expectations in the next quarter, the traditional high season, market concerns will be raised over the outlook for the second half of this year,” Su said.
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