The TAIEX could fall about 5 percent by the end of the year after trading “sideways” next month following a rebound from this year’s low, Bank of America Merrill Lynch said.
“We are toning down our previous positive stance, as investors have reacted to positive catalysts earlier than expected,” Tony Tseng (曾省吾) said in a report on Tuesday.
The analyst predicted in July that the weighted index might rise to 8,500 in the second half, helped in part by improved sentiment following the signing of the Economic Cooperation Framework Agreement with China.
The TAIEX climbed 0.1 percent to 8,196.40 on Tuesday, rebounding from a low of 7,071.67 on June 9. The advance helped the index erase its losses for the year. The market was closed for the Mid-Autumn Festival yesterday.
Merrill Lynch said it’s becoming less positive on Taiwan because monthly hardware sales would be “flat” next month after growing sequentially this month.
Valuations for non-tech stocks have also become “stretched” after recent gains, while Taiwan and China are unlikely to make “major progress” on cross-strait ties before December talks, Tseng said.
While Merrill Lynch has since cut its outlook for the TAIEX, its forecast of a 5 percent drop is still “less pessimistic” than those of other brokerages, Tseng wrote.
Credit Suisse Group AG on Sept. 1 cut its year-end forecast for the TAIEX to 7,300 from 8,500, saying Taiwan faces “contagion” risks as slowing US consumer spending reduces demand for exports.
UBS AG said last month it’s maintaining its year-end estimate of 7,600, with stocks heading for a “pullback” in the fourth quarter.
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