Taiwan stocks powered ahead last week, extending a bull run that so far has lasted roughly nine weeks.
After climbing 4.1 percent in the Jan. 24 to Jan. 29 period, the TAIEX rose 5.1 percent over the last five trading sessions to 10,128.67 -- its highest close in almost 10 years. The Over-the-Counter index rose to 279.29, gaining a whopping 14.1 percent.
Since mid-December, the TAIEX has jumped 31.1 percent. Meanwhile, the OTC index has soared 52.2 percent, owing to its lower average price-to-earnings ratio compared to the TAIEX.
But the huge gains for both indexes has led some analysts to forecast a downturn in the near-term, especially in the lead-up to the March presidential election.
"There might be a correction in the short term," said Grace Li, research manager at investment house MasterLink Securities (元富). "Some people will consider selling their stocks and holding cash."
Although political factors to date haven't affected the market, MasterLink has been advising clients to gradually pare down holdings.
"It might be smart to realize some gains and wait for the adjustment to come," Li said. At that time, she said, any correction would be a good opportunity to buy shares cheaply.
MasterLink isn't the only one that sees potential turbulence ahead. Jovi Chen, equities analyst for China Securities, also sees the market consolidating this month, but no lower than 8,500. Li said the TAIEX could reach as high as 10,300 in the next two to three weeks, followed by a 1,000-point correction.
"If Chen Shui-bian (
The election of independent James Soong (
As stocks broke through the psychologically important 10,000 barrier last week, retail investors began paying attention to the market's laggards.
"People have begun shifting into to stocks that gained less compared to the previous stars," Li said. "The low-priced stocks in almost every sector gained this past week."
Construction shares, in particular, put in a tremendous performance last week, though analysts have doubts about the sector's prospects.
"There's no fundamental reason for the rise," Li said. "People only buy them to feel safe."
Cathy Construction (
National Securities attributes the rise in construction shares to a 3 percent rise of the average selling price of pre-sale construction projects in Taipei and the buying of four new funds that focus on low price-to-book stocks.
Li also said retail investors have begun to focus on construction shares simply because their face value is low and, therefore, they are perceived as being undervalued, regardless of the company's underlying fundamentals. Hung Fu Construction (
Other positive factors last week included the continued strong buying of foreign institutional investors. Over the last five trading days, these investors have bought a net NT$29.2 billion. For the year, the figure is a net NT$72.4 billion in shares.
Stocks that have high dividend payouts are seen as outperforming in the second quarter. Companies' boards traditionally meet in June to decide the amount of such payouts, which usually come in the form of additional shares.
Some of the expected beneficiaries include Hon Hai Precision Industry (鴻海精密), Asustek Computer (華碩), Ambit Microsystems, VIA Technologies (威盛電子), Quanta Computer (廣達) and CMC Magnetics (中環).
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