Taiwan's stocks are likely to extend gains ahead of bullish sentiment and ample liquidity, but selling pressure may soon set in as the index approaches 5,500 points, analysts said Friday.
"The market's week-long rally after the legislative elections has gone far beyond our expectations," said Gary Chu, analyst at Dresdner RCM Global Investors Securities Investment Co.
In the wake of the ruling DPP's stunning victory in the polls and Wall Street's recent gains, the TAIEX jumped 892.81 points or 20.1 percent over the week to 5,333.93 on Friday, the highest level in seven months.
"We predict the market would remain bullish for a while longer amid growing optimism over the domestic political and economic outlook," he said.
The DPP is set to become the largest party in the legislature as a result of the elections, winning 87 seats, while the KMT lost its grip on the legislature for the first time ever after it secured just 68 of the chamber's 225 seats.
The expected coalition between President Chen Shui-bian's (
"Investors generally expect the DPP-led coalition would provide more stability in the legislature," Chu said.
Strong buying of semiconductor shares from foreign institutions also reflected confidence in the industry, which was widely believed to have climbed out of its slump, he added.
As the nation's leading chipmaker, Taiwan Semiconductor Manufacturing Co (台積電) has recently raised this year's pre-tax profit forecast by 54.8 percent, signalling a recovery of the industry. However, Chu cautioned that the benchmark index could encounter resistance around 5,500 to 5,600 points.
"The market has staged an exceptional rise of nearly 1,000 points and it is only natural that it will need to undergo a correction next week," said Ta Ching Securities broker Daniel Liu.
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