There must be something about making a quick buck that causes investors to lose their heads.
Since Dec. 3, the TAIEX has soared 20.1 percent to 5,333.93 points -- a spectacular one-week gain reminiscent of the go-go days of early last year.
Investors bid up shares last week on the hope that the results of this month's elections will bring stability to the legislature.
They're also giddy over the prospect that the US recession -- and by extension, Taiwan's downturn -- is coming to an end.
With the Dow and NASDAQ breaking the psychological barriers of 10,000 and 2,000 respectively, investors are betting that the bad times are over, and profits for many of Taiwan's money-losing companies are just around the corner.
Will the index climb higher?
Probably a better question to ask is whether the TAIEX should climb higher. There's reason to believe investors are overdoing it.
The primary one is that -- although many companies may do better than originally expected in the fourth quarter -- the outlook for the first two quarters of next year remains unclear.
Economists in Taiwan and high-tech CEOs from around the world will tell you they expect a rebound late next year. But many remain cautious about what the future holds for the short term, complaining of a "lack of visibility."
Until the orders come in, they say, it's hard to tell whether demand for high-tech goods that is beginning to pick up now will continue to get stronger, and by how much.
And though there's reason to be optimistic -- worldwide semiconductor sales, for example, rose 2.4 percent to US$10.43 billion in October and may expand 4.7 percent this month -- the recent spate of good news may not be enough to justify last week's gains.
Many foreign institutional investors think the 20.1 percent run-up -- like most rallies in the history of Taiwan's market -- has been too much, too quickly.
On Friday, volume on the Taiwan Stock Exchange swelled to NT$183 billion, an amount not seen since the heady dotcom days, as retail investors looking to make a quick killing moved in. Long margin positions have climbed to NT$152 billion.
Basically, Taiwanese investors have been buying stocks simply because they are going up. This has long been the modus operandi of investors in Taiwan.
And what's difficult for some market watchers to discern is when the market madness will end and rationality return. Though stocks today may fairly reflect their fundamentals, that won't necessarily stop investors from chasing shares higher.
Still, markets can't be sustained by hubris and wishful thinking forever. At some point, unless there's additional good news to justify further gains, a pullback is inevitable. Unsurprisingly, some foreign market watchers are warning clients to take the money and run.
FROM ONE EXTREME TO THE OTHER
What's remarkable about last week's 20.1 percent advance is how quickly the mood of the market has changed.
Just two months ago investors were possessed by a mania of a different sort. After the Sept. 11 attacks in the US, the TAIEX fell 17.5 percent to 3,446.26 points in the space of 12 trading sessions.
Though few analysts at that time could quantify the attacks' impact on the world economy, investors dumped shares in droves, worried about a prolonged recession in the US and suppressed demand for Taiwanese-made goods.
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