The TAIEX is likely to enter a correction period this week amid modest trading as lingering concerns over radiation contamination in Japan continues to impact market sentiment, analysts said.
The benchmark index gained 1.1 percent last week to close at 8,705.13 points on Friday. The local bourse was closed on Monday and yesterday due to the Tomb Sweeping Festival.
“The local bourse may consolidate in the short term as worries over supply chain disruptions following Japan’s March 11 earthquake may continue to weigh on sentiments,” Eric Li (李俊毅), a fund manager at Allianz Global Investors Taiwan Ltd (德盛安聯投信), said in a note.
The fact that the second quarter is the low season for the technology sector will deepen the cautious sentiment, Lee said.
Li, who is optimistic about smartphone, raw material and -tablet-related shares, expects foreign institutional investors to increase holdings in local shares, attracted by the nation’s economic strength.
Foreign fund managers, who account for about one-third of total trading, bought a net NT$13.26 billion (US$453.3 million) in local shares last week. Domestic proprietary traders added a net NT$520.08 million, while domestic investment trust companies cut a net NT$510.91 million, Taiwan Stock Exchange data showed.
While Li was cautious about stocks that are vulnerable to potential supply chain bottlenecks, HSBC Holdings PLC appeared to downplay such worries.
“Fears of a major disruption to Japanese component production operations and supply lines are overblown,” said Donna Kwok (郭浩庄), HSBC economist for Greater China.
Most Taiwanese tech manufacturers keep a two-month supply for critical components in inventory and should emerge unscathed if Japan, the key supplier of the world’s electronic components and materials, can contain the nuclear crisis within that period, Kwok said in a report on Monday.
However, the proposed luxury tax, which the legislature’s Finance Committee intends to vote on today, might drag down property shares.
The construction and building material sub-index shed 3.2 percent last month, more than the main index’s 0.26 percent drop during the same period, after the government unveiled plans to impose a tax on short-term property transactions.
The planned tax drove down home sales by 20 percent to 50 percent in different parts of the nation last month, according to real estate brokerages.
Against this backdrop, the TAIEX is likely to fluctuate in a narrow range in the near term, said Doris Lee (李穗佳), a fund manager at Taishin Securities Investment Trust Co (台新投信).
“Investors had better adopt a conservative strategy before uncertainties abroad shed more light,” Lee said.
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