The TAIEX is likely to enter a correction period after rallying above the 8,000-point mark because of a lack of strong economic fundamentals at home and abroad, Fubon Asset Management Co (富邦投信) said yesterday.
Bank of America Merrill Lynch said it would be clearer to evaluate how the nation’s benchmark index will move later this year, after major domestic technology companies announce their guidance for the second half of this year next month.
The remarks came as the TAIEX pushed back above 8,000 yesterday, led by the financial sector on improved profitability outlook and thanks to better market sentiment toward the eurozone debt situation.
However, analysts from Fubon and Merrill Lynch said downside risks remain, as a fragile US economic recovery and growing inflationary pressures could still weigh on global markets in the coming months.
The TAIEX closed up 103.96 points, or 1.31 percent, at 8,031.51, on the Taiwan Stock Exchange.
“Investors who failed to take advantage of the recent rallies on the local bourse had better adopt a cautious approach,” Fubon Asset Management chairman Thomas Tsao (曹幼非) told a media briefing.
Tsao suggested investors closely watch the US job market, which he said must add an extra 200,000 jobs per month to lower the unemployment rate below 8 percent.
US consumer spending must also advance 0.4 percent each month, while used-home prices must stop declining before the world’s largest economy could put up a concrete recovery, he said, adding housing prices have yet to turn around.
The valuations in US shares are approaching the resistance level, warranting a conservative strategy, Tsao said.
Manulife Asset Management Taiwan (宏利投信) took an overweight view on global property equities, which saw excessive corrections last year and are set for upward adjustments this year.
Inflationary pressure and interest-rate cuts are the two best supporters of property equities, Manulife head of investment strategy Jason Cheng (鄭安佑) said.
The company was cautious about Taiwanese construction shares, however, saying their best days were probably over as the government moves to reform property taxes amid growing complaints about unaffordability of housing.
Meanwhile, Katherine Hu (胡傳祥), a Taiwan-based Merrill Lynch equity strategist, told a separate press conference that the TAIEX is likely to rally from 8,000 points only after major technology firms deliver a genuinely optimistic outlook for the second half.
“Since the market generally expects the global economy in the second half of the year to be better than that in the first half, major technology players’ guidance for the second half will be the most important factor for either driving up or striking down sentiment in the stock market,” Hu said.
However, if the guidance offered by these companies were not up to market expectations, the TAIEX may stage a range-bound consolidation at 8,000 points for the rest of the year.
The brokerage maintained its forecast that the TAIEX would hit 8,600 points by the end of the year.
Under these uncertainties, Merrill Lynch recommended investors focus on three sectors with upsides for this year — Ultrabook-related PC stocks, Apple Inc’s supply chain and the financial sector.
The Ultrabook is expected to be a major seller for the PC sector in the second half of the year, while Apple-related stocks may have strong momentum over the near future as Apple’s new tablet product enters the market, Hu said.
She also said President Ma Ying-jeou’s (馬英九) re-inauguration ceremony in May and ensuing political events between Taiwan and China would provide upside sentiment for the financial sector.
“The financial sector’s fundamentals are not that bad. It only needs some stories to drive up sentiment and momentum,” she added.
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