Though analysts don't see a major market rally on the horizon, they do expect investors this week will concentrate on companies with strong growth prospects and first-quarter earnings results.
"People are shifting into quality stocks. Everyone is still positive about DRAM," said Michael McGregor, vice president of sales at Primasia Securities. "Earnings results for TSMC and UMC were very good. If the TAIEX goes anywhere, these stocks will be the focus."
After rising 2.87 percent in the April 17 to April 21 period, the nation's main index fell 3.8 percent last week to 8,777.35 -- largely on reports China was planning war games to coincide with the May 20 presidential inauguration.
The Over-the-Counter index dropped 5.8 percent to 271.41.
But while the TAIEX is still 16.2 percent off its 52-week high, analysts say the nation's retail investors this week are likely to buy IC plays in a "flight to quality" shares.
"Our top picks are DRAM, followed by foundries and IC designers," said Grace Li, research manager at MasterLink Securities. "Any time you see the TAIEX fall and you have some cash, start thinking about these three groups."
Li favors memory maker Winbond Electronics Corp (
Li sees Winbond reaching NT$100 in the near-term, while McGregor has a long-term price target of NT$120.
Then there's Taiwan Semiconductor Manufacturing Co (TSMC,
TSMC last week reported that first-quarter net income rose 147 percent to NT$10.09 billion, up from NT$4.09 billion in the same period last year. UMC said net earnings soared a whopping 687 percent to NT$7.45 billion, up from NT$946 million.
TSMC closed at NT$195 percent Friday, up 4.8 percent for the week. UMC rose 9.3 percent to NT$106 as it shook off concerns that its new wafer facility would be closed for lack of a proper environmental permit.
Li has short-term price targets of NT$120 for UMC and NT$220 for TSMC, while McGregor has a long-term price target of NT$186 for UMC.
McGregor also likes VIA Technologies with a long-term price target of NT$645. VIA, which is expected to see increased orders as a result of Intel's CPU shortage, closed at NT$475 Friday, down 22.5 percent for the week.
Political worries
While analysts are bullish on IC companies based on the industry's healthy fundamentals, they say non-fundamental factors such as cross-strait tensions could affect the market in the short-term.
"The political side is negative until May 20," when President-elect Chen Shui-bian (
The Taipei Times' Brian Hsu reported last week that China was planning war games that could involve missile launches. Subsequent media coverage again raised fears that China would make good on its promise to forcefully unite China and Taiwan. "Although people don't really think that will happen, the talk about it will hurt the market," Li said.
In a research note to investors, Taiwan International Securities said a share rally may not be sustainable until May 20 passes, even though signs of bargain hunting have emerged in recent sessions.
"Our view is that the market will be in a phase of upward consolidation in the next few sessions with increasing volatility," the research house wrote.
But Eric Ni, associate vice president at Taiwan International, also noted that the TAIEX wasn't likely to dip below 8,500 going forward, as institutional investors last week bought heavily at that level. "That low has been confirmed," Ni said.
Other negative factors include the NASDAQ's ongoing woes, which could put an end to the "wealth effect" in the US and thus dampen demand for Taiwanese PCs and consumer electronics.
If the US markets don't go up, Americans may feel less wealthy and cut back spending, Li said.
"The major concern is electronics exports to the US market," she said. "That has everything to do with Taiwan's stock market."
Analysts expect the TAIEX to trade between 8,500 and 9,300 this week. In order for the market to stage a major advance, they said, daily turnover must break the NT$200 billion level.
The Securities and Futures Commission (證券會) is rumored to be looking into the trading activity of mutual funds for evidence of stock ramping, analysts say.
Potential targets include mutual funds that have heavily bought high-flying OTC stocks. Likely candidates for investigation include mutual funds that are the sole institutional investor for a particular share, and who also control most of that stock's float.
"They are starting to investigate mutual funds that have moved certain stocks," said Taiwan International's Ni.
One potential result of the SFC's inquiry, Ni said, would be that mutual funds going forward would elect to hold cash or focus on main board issues instead of buying thinly traded OTC shares.
"Their targets will be large companies, not small caps," he said.
MasterLink's Li said occasionally mutual funds will collude with a company's management to pump up that company's stock.
Often, she said, a company and a mutual fund will control as much as 95 percent of the company's outstanding shares -- making the stock's price easily manipulated.
"There's always some under-the-table bargaining, and that's not fair to the market," Li said.
Disclosure: The author, Michael Logan, owns shares in UMC
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