Local stocks may enter a correction phase on moderate turnover this week because investors may opt to stay on the sidelines as the nation prepares to go to the polls on Saturday in the special municipality elections, securities analysts said.
The benchmark TAIEX declined 0.12 percent last week to 8,306.12 points from the previous week, following a 1.58 percent decline in the week before that, the Taiwan Stock Exchange’s data showed.
Daily turnover shrank to an average of NT$87.7 billion (US$2.86 billion) last week from NT$110.8 billion a week earlier, as cautious sentiment started to weigh on the market, Allianz Global Investors Taiwan Ltd (德盛安聯證券投信) said.
“The local bourse has cooled down ahead of the mayoral elections” after it rallied to a 29-month high early this month, said Sunny Chung (鍾兆陽), a manager at the Taiwan branch of the Munich, Germany-based financial service provider.
The TAIEX is likely to consolidate even though Taiwan’s economy expanded 9.8 percent in the third quarter, which was stronger than market expectations of between 7 percent and 8 percent, Chung said.
Chung dismissed concern of a double-dip recession scenario in the US economy after the US Federal Reserve introduced a -second round of quantitative easing to stimulate economic growth.
However, Kuo Chien-cheng (郭建成), a fund manager at Taishin Investment Trust Co (台新投信), said the movement of the US dollar would decide the short-term outlook of the liquidity-driven local bourse.
“Taiwan stocks would rebound on signs of US dollar weakness,” Kuo said in a client note on Friday.
Henry Chen (陳志恆), an investment research director at KBC Concord Asset Management Co (康和比聯投信), said he expected the TAIEX to consolidate between 8,300 and 8,500 points, adding that China’s counter-inflation measures and appreciation of the yuan would weigh on companies that have operations in China.
Chung and Kuo recommended electronics shares and players in the Chinese market, such as smartphones, auto and food makers, that may climb on rush orders from the world’s most populous country ahead of the Lunar New Year.
Barclays Capital, the British investment bank, voiced a similar view and maintained the overweight rating for HTC Corp (宏達電), the world’s leading maker of smartphones running on the Windows Mobile and Android platforms.
The lender upgraded HTC’s target price from NT$760 to NT$1,200 last week, on grounds mobile computing technology is still in the early stages of development and dynamics in the industry will remain healthy next year, leading to strong earnings for sector leaders.
Shares of HTC have risen 125.65 percent this year to close at NT$827 on Friday, outperforming the TAIEX’s 1.44 percent increase over that same period, the stock exchange’s data showed.
Barclays Capital also recommended Unimicron Technology Corp (欣興電子), a Taoyuan-based printed circuit board maker and Silitech Technology Corp (閎暉), a supplier of mobile phone keypads, on grounds both are leaders in the supply chain fpr Nokia Oyj.
JPMorgan, on the other hand, suggested investors look at bank shares, with First Financial Holding Co (第一金控) and Chang Hwa Bank (彰化銀行) coming in among its top picks. Shares of First Financial have risen 0.25 percent to NT$19.9 so far this year, while Chang Hwa has increased 32.46 percent to NT$20.2.
The US brokerage said it saw strong credit demand from the non-tech manufacturing sector and small and medium-size enterprises, and it expects the government to increase borrowing to fund infrastructure projects next year.
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