Taiwan’s main board could experience a technical pullback after the TAIEX soared more than 28 percent in the first half of this year following a strong showing by artificial intelligence (AI)-related stocks, analysts said on Saturday, predicting that the index would make a comeback in the fourth quarter.
On Friday, the last trading session of this month, the TAIEX rose 126.27 points, or 0.55 percent, to 23,032.25, pushing up the main board by 5,101.44 points, or 28.4 percent, in the first six months of the year.
Of the major indices in the world, the TAIEX only trailed the Philadelphia Semiconductor Index in the US, which surged about 30 percent in the first six months after AI chip designer Nvidia Corp skyrocketed more than 150 percent over the period.
Photo: CNA
Many Taiwanese AI-related tech stocks have closely correlated with Nvidia in terms of their price movements.
Contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) jumped 62.9 percent in the first half of the year to close at NT$966 on Friday, while iPhone assembler Hon Hai Precision Industry Co (鴻海精密), known as Foxconn Technology Group (富士康科技集團) internationally, soared about 105 percent in the first six months to close at NT$214 on Friday.
TSMC and Hon Hai are the top two stocks in Taiwan in terms of market capitalization, and their growth helped drive the broader market sharply higher.
Cathay Securities Investment Trust Co (國泰投信) chairman Jeff Chang (張錫) said the TAIEX is expected to face technical headwinds in the third quarter after a high-flying first half of the year.
This is because significant gains are expected to lead to people selling stocks to pocket profit, Chang said.
AI development is a long-term trend and with shipments of AI servers powered by Nvidia’s latest graphics processing units to start in the fourth quarter, the TAIEX is expected to rebound, he said.
That strength is likely to continue into next year, he added.
Echoing Chang, Capital Investment Management Corp (群益投顧) president Rico Fan (范振鴻) said TSMC and Hon Hai would need some time to consolidate before beginning to climb again after TSMC shot up from an intraday low of NT$593 early this year to an intraday high of NT$984 this month, and Hon Hai jumped from NT$104.50 to NT$217.5 in the first six months.
In particular, TSMC is expected to challenge the critical threshold of NT$1,000, meaning the stock could face volatility in the third quarter, Fan said.
Meanwhile, many stocks on the main board would go ex-dividend in the third quarter, which is expected to cut about 600 points from the TAIEX, he said.
In Taiwan, going ex-dividend refers to the date a stock starts trading without the value of its next dividend payment.
Fan said that AI-related stocks are expected to attract buying in the fourth quarter amid ample liquidity.
As TSMC dominates the global pure-play wafer foundry business and is the only company able to connect suppliers at different stages of the supply chain, as long as the stock moves higher after corrections, the TAIEX would follow, he said.
However, it is hard to predict how high the index would go if TSMC continues to make strong gains after buying resumes, he added.
KGI Securities Investment Advisory Co (凱基投顧) chairman Chu Yen-min (朱晏民) said that although AI-related stocks fared well, many others failed to do so in the first half of the year, meaning the TAIEX gains were uneven.
As many AI-related stocks are now trading at historically high price-to-earnings ratios after a recent surge, their high valuations might make them vulnerable to declines in the third quarter, Chu said.
AI development has extended from cloud applications to end-user gadgets including AI PCs and AI phones, he said.
With Apple planning to introduce AI on its iPhones, next-generation smartphones are expected to encourage consumers to replace their old models with new ones, Chu said, adding that local “Apple concept” stocks could benefit from the trend.
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