The local bourse might stage a moderate rebound this week, but the pace is expected to be limited as investors turn cautious before domestic and international companies reveal their first-quarter earnings results, analysts said.
The TAIEX is likely to trade in a tight range this week after shedding 2.52 percent last week to 9,502.72 points, Hua Nan Securities Management Investment Co (華南投顧) chairman David Chu (儲祥生) said.
“The small gain on Wall Street on Friday might spur a rebound in the local bourse tomorrow [today], but the recent correction in the stock market might persist a little longer” until the market assimilates negative developments, Chu said by telephone yesterday.
A technical rebound is in place now that has caused the TAIEX to drop to close to its quarterly moving average of 9,440 points, but a sense of caution would dominate the market ahead of the four-day Tomb Sweeping Festival holiday beginning on Friday, Chu said.
“Foreign fund movements hold the key to market sentiment going forward, as they underpinned the rallies seen this quarter,” Chu said.
Foreign investors have been net buyers of Taiwanese shares so far this year, on the back of the New Taiwan dollar’s relative stability compared with other Asian currencies and good earnings momentum among Taiwanese companies.
However, on Friday alone, foreign investors trimmed their positions on local shares by a net NT$21.69 billion (US$691.31 million), in response to a softening of the Dow Jones Industrial Average index.
Meanwhile, shares in the nation’s top technology companies have dipped on reports of orders lost to rivals and weak demand for mobile devices in China.
“Many stocks in the tech sector beat market consensus estimates for earnings in the fourth quarter of last year, but we do not expect this trend to continue in the first quarter of this year,” Yuanta Securities Investment Consulting Co (元大投顧) research head Vincent Chen (陳豐丰) said in a client note on Thursday.
Chen based his caution on several negative factors that are expected to weigh on earnings in the sector this quarter, including an estimate that iPhone shipments could drop by about 20 to 25 percent from last quarter, and that the NT dollar has appreciated 1.2 percent against the US dollar.
Yuanta said it does not hold a positive view on the TAEIX in the near term because water rationing could dampen tech sector sentiment and there could be a US market correction owing to inventory corrections in the second quarter. Meanwhile, declining housing market liquidity might also weigh on the market, the brokerage said.
While Yuanta still maintains its target for the TAIEX at 9,500 points, Allianz Global Investors Taiwan (德盛安聯投信) is more pessimistic, saying the index might drop further as US companies report weaker-than-expected profits for this quarter due to a stronger US dollar.
In addition, expectations of interest rate hikes by the US Federal Reserve later this year might deepen asset relocation concerns, Allianz fund manager Corrina Xiao (蕭惠中) said.
Many institutions expect the Fed to start normalizing its monetary policy in the second half of the year.
As the expected hike looms closer, Fed policy is set to have more of an impact on exchanges around the world, Xiao said, predicting greater volatility for the TAIEX.
Prudential Financial Securities Investment Trust Enterprise Co (保德信投信) said the TAIEX might be consolidating in the second quarter amid assorted uncertainties.
“In the end, it is corporate profits that decide a company’s stock values,” Prudential fund manager Bevan Yeh (葉獻文) said.
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