Many investors probably feel happy about their stocks as the TAIEX ended the year at an annual high of 8,188.11 points. Moreover, the benchmark index’s yearly increase of 3,596.89 points, or 78.34 percent, was the largest rally in 16 years.
Data from the Taiwan Stock Exchange Corp (TWSE) showed that the total market value of local stocks increased NT$9.33 trillion (US$291 billion), or 79.67 percent, last year to NT$21.33 trillion, translating into an increment of approximately NT$3.01 million for each of the 3.09 million investors who traded shares last year.
If the calculation was based on a population of about 8.52 million people who have opened securities accounts, each investor made an average of NT$1.09 million during the year. In either case, for many investors, investment in local stocks last year had its benefits.
What made last year notable is the fact that the stock market managed to move forward in the first quarter after Taiwan tumbled into its worst recession since 2001. After hitting a low at 4,242.61 points on Jan. 20, the market began to show signs of resilience amid warmer cross-strait relations and the recovering global economy.
From the second quarter onward, the market shrugged off internal and external pressures like political bickering and rising oil and raw material prices, and rallied on encouraging corporate earnings — despite the havoc wrought by Typhoon Morakot in August and the panic about the potential Dubai bankruptcy in November.
Even so, one should notice that the TAIEX’s annual high of 8,188.11 point on Dec. 31 was 11.9 percent below its 2008 high of 9,295.20 on May 19. The market has yet to return to its level before the global financial crisis.
Furthermore, even though the 78.34 percent surge on the TAIEX last year looked impressive, most markets in Asia also had a good year, with Indonesia leading regional markets with a rise of 87 percent, which was followed by India with 81 percent and Shanghai with 80 percent.
It would also be short-sighted to look at last year’s performance as the only evidence to foresee this year’s development, because like other economic data released recently, the comparison base for the previous year is too low to say the rebound is solid.
Indeed, the nation’s economic rebound late last year was merely a byproduct of government spending and recovering external trade, not consumer spending and private investment. Which means that if the government decides to withdraw its stimulus measures, we should be cautious about rising unemployment and weak consumption.
This year, investors will probably be in the mood to load up on more shares amid expectations of a persistent recovery in the world economy and the inking of an economic cooperation framework agreement (ECFA) with China. The market will also gain support from the likelihood of continued foreign capital inflows — as long as the value of US dollar remains low.
But there will be challenges this year, too. Weak growth in the US and European economies could dampen any chances of a strong recovery in Taiwan’s exports. While most economists forecast a return to growth for Taiwan this year, the economy won’t return to pre-crisis levels any time soon. Rising raw material and fuel prices could undercut consumers’ potential purchases. Moreover, the central bank will need to cap soaring asset prices and curb inflation without endangering the fragile recovery with its credit tightening measures. That will require care and wisdom.
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