After a robust increase in the TAIEX last year, market sentiment has become upbeat, likely causing a so-called “January effect” and sending the main board further upward, dealers said over the weekend.
The January effect refers to a seasonal rise in the market after foreign institutional investors return to the trading floor following the New Year holiday.
The TAIEX could possibly rise 1,500 to 2,000 points and hit 20,000 this year, Mega International Investment Services Corp (兆豐國際投顧) manager Alex Huang (黃國偉) said.
While economic growth and increases in corporate profits are expected to be moderate this year due to last year’s relatively high comparison base, the impact from the COVID-19 pandemic and a global chip shortage could weaken, Huang said.
The bellwether electronics sector could lead the broader market higher, riding the wave of the January effect, he said.
However, Huang said that as the TAIEX approaches 20,000 points, it is likely to encounter a technical pullback of 10 to 15 percent.
The TAIEX rose 3,486.31 points, or 23.66 percent, from the end of 2020 to close at 18,218.84 points on Thursday, the last trading session of last year. It was the third highest growth in the main board’s history.
Although foreign institutional investors sold a net NT$454 billion (US$16.4 billion) of shares in Taiwan last year amid concerns over COVID-19, lingering tensions between the US and China, and a move by major central banks — particularly the US Federal Reserve — to tighten monetary policy saw local investors rush to fill the void, pushing up the TAIEX throughout the year, dealers said.
Shin Kong Investment Trust Co (新光投信) chairman Quincy Liu (劉坤錫), who also expects the January effect to play out, said he favored semiconductor stocks.
Investors should pay close attention to Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and the company’s suppliers, he said.
On the main board, the tech sector received a boost from rotational buying in the second half of last year, led by TSMC, Liu said.
Rotational buying is expected to dominate the main board, with chemical raw material suppliers and financial stocks likely to benefit from the trend, he said.
Allianz Global Investors Taiwan Technology Fund (安聯台灣科技基金) manager Peter Liao (廖哲宏) said investors should pay attention to the corporate outlooks of key tech companies when they host their earnings conferences in the middle of this month.
Allianz maintains a positive view of the semiconductor industry and expects the chip shortage to continue until the first half of this year, Liao said.
Sales in the semiconductor industry this quarter are forecast to defy the industry’s historical pattern with better-than-expected results, although this quarter is a traditionally slow season for the industry, he said.
However, spot prices of memory chips recently staged a rebound, and coupled with the lockdown of Xian in China, short-term supply of memory chips is likely to become tight, further supporting chip prices, Liao said.
Overall, an anticipated strong start to the reporting season by tech companies would support the stock market in the first quarter, he added.
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