Taiwan’s stock rally might have peaked in July, as the local market has been slipping back in see-saw trade over the past two months alongside sliding daily turnover, Yuanta Securities Investment Consulting Co (元大投顧) said yesterday in a client note.
Positive catalysts to lift the market out of the current conundrum appear limited and investors are advised to focus on defensive stocks to serve as safe havens while extending their equity picks from tech stocks to non-tech stocks in the short term, Yuanta said.
The TAIEX finished this week at 9,240.45 points, up 0.19 percent from 9,223.18 on Friday last week. The index has declined 3.7 percent since reaching a six-and-a-half year high in July, according to data from the Taiwan Stock Exchange.
Turnover was NT$367.86 billion (US$12.16 billion) this week, or NT$73.57 billion on average per day, compared with the daily average of NT$97.09 billion since the beginning of the year, data showed.
“The TAIEX has been consolidating in the past two months, while the trading amount shrank to NT$70 billion, below the year-to-date average of NT$97 billion,” Yuanta research head, Vincent Chen (陳豐丰), wrote in the note.
Chen said the lower market turnover suggests that investors have not reinvested much of their cash dividends in the local market, as some investors were hurt by the previous crash of certain high-flying biotech stocks, while others are worried about business prospects for the technology sector as demand for PCs, servers and smartphones shows signs of weakening, he said.
In addition, Chinese stock markets might have regained investors’ attention lately, amid the upcoming implementation of a Shanghai-Hong Kong stock connection scheme.
The Shanghai-Hong Kong link-up is expected to start on Oct. 20, threatening market liquidity in Taiwan, Chen said, adding that the impact might extend further if a Shenzhen-Hong Kong link also takes effect later this year.
“With market volume dropping and local participation also contracting, local investors have been investing elsewhere, remaining on the sidelines or getting ready to play the Shanghai-Hong Kong Connect,” Chen wrote.
Hua Nan Securities Co (華南永昌證券) analyst Stan Chang also cautioned about the potential effects if China’s economy continues to slow down.
“I expect the low trading volume in the local bourse to continue amid caution toward equity markets in China after Beijing reported disappointing economic data recently. So narrow-range trading will dominate the local market over the next few sessions,” Chang said.
However, one of the swing factors that might affect the TAIEX’s near-term performance is the local government elections scheduled for Nov. 29, Yuanta said.
The brokerage said market jitters might emerge if the ruling Chinese Nationalist Party (KMT) loses five out of six metropolitan cities, the brokerage said.
“It may raise investor concerns around which party will win the next presidential election in March 2016, therefore dampening the stock market outlook,” Chen wrote.
Yuanta has lowered its target for the benchmark TAIEX from 9,850 to 9,600 points.
Additional reporting by CNA
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