The presidential election at home and the sovereign debt crisis in Europe will continue to jolt the local bourse and sideline investors, with the TAIEX likely falling below its 10-year moving average in the first quarter before staging a comeback, analysts said.
The benchmark index, which rallied nearly 4 percent on Thursday after six central banks adopted coordinated actions to provide cheap US dollars to prevent a credit crunch, shed 0.53 percent yesterday on profit-taking.
The TAIEX closed down 38.01 points at 7,140.68, with daily turnover shrinking to NT$70.6 billion (US$2.34 billion), from NT$109.8 billion a day earlier, Taiwan Stock Exchange data showed.
The drop followed corrections across major world markets overnight, suggesting that the liquidity measure might not help Europe’s debt problems or ease global economic downside risks, Allianz Global Investors Taiwan Ltd (德盛安聯證券投信) fund manager Sunny Chung (鍾兆陽) said.
The local index ended the week up 5.25 percent, but it is still down 14.15 percent from the level on Aug. 4, when Standard & Poor’s cut US sovereign credit ratings.
The TAIEX is likely to consolidate in the near term as the presidential candidates gear up for the Jan. 14 election, including a policy debate today, and European leaders keep on searching for a solution to the region’s debt woes, Chung said.
The combination of political and economic uncertainty is a guarantee of more volatility, which may drive the TAIEX below its 10-year moving average of 6,730 level in the first quarter, Taishin Securities Investment Advisory Co (台新投信) chairman Andy Wu (吳火生) said.
The unease will intensify when major technology firms release their financial results between January and February, Wu said.
Many companies are likely to confirm below-par performance based on their monthly revenue, Wu said.
“Poor visibility will make it harder [for companies] to provide guidance for the coming year,” he said. “Manufacturers will wonder if it is better off for them to destock or restock ... Some may take their cue from the Christmas sell-through.”
The TAIEX could start a slow but steady climb from the second quarter after companies have a better grasp of the global economy and shift gears to brace for the high season in the third and fourth quarters, Wu said.
That may push the index back to 8,300 toward the end of next year, Wu said, adding that he stood by his predictions no matter which party wins the presidency.
“It is unrealistic to ignore China or reverse cross-strait opening as the world grows increasingly closer,” he said.
Fubon Securities Co (富邦證券) president Charles Hsiao (蕭乾祥) said the TAIEX might fluctuate between 6,800 and 8,800 next year, hitting the trough in the first quarter if world leaders could work out a lasting solution to the debt crisis by then.
Hopefully, EU leaders can deliver a meaningful, long-term solution to the massive debt problem after the summit next week, Hsiao said.
Fubon Financial Holding Co (富邦金控) chief economist Rick Lo (羅瑋) suggested investors shun the bourse before the drama settles.
“Investors can better decide what to bet at lower prices,” Lo said.