Bargain stock prices -- the result of political uncertainty surrounding the presidential election -- proved too tempting for local investors to pass up last week.
Stocks took a big dip in the days leading up to the presidential election after it became apparent that Chen Shui-bian (陳水扁), the DPP candidate whom Beijing opposed, was likely to win.
But in the week since Chen's victory, China hasn't responded with the kind of virulent rhetoric for which it is known. In particular, analysts were heartened by one Chinese trade official's comments that the president-elect's trade policies are more practical than his predecessor's; Chen supports direct transportation links with China.
After plunging 7 percent in the March 13 to March 17 period, the TAIEX rose 719.37 last week, or 8.2 percent, to 9,482.64.
The Over-the-Counter index put in a stunning performance as well. After falling 12.7 percent in the days before the election, it soared 42.76 points to 284.07, for a whopping 17.7 percent gain.
"The market regained its confidence after things got clarified," said Jovi Chen, equities analyst at China Securities.
With the TAIEX off more than 15 percent from its 52-week high, retail investors were asking themselves, "Why not jump in at this level?" Chen said.
And though the main index staged a breath-taking comeback, Chen said the rapid rise wasn't cause for concern. "It went down too quick, too fast," he said. "So it should go up too quick, too fast."
Ralph Dixon, head of sales at Primasia Securities, agreed that last week's gains weren't excessive, "Considering that we were heading toward 13,000, and I think we still are."
Still, Chen and Dixon expect this week's trade will be a little more subdued, though both say there is plenty of upside potential left, especially in high-tech companies.
"I think we should build some more base, not rushing up so quickly," Dixon said, adding that he expects the TAIEX to trade between 9,300 and 10,000 this week.
"I think we'll still need a little time for some consolidation," Chen said.
Chen said stocks will likely reach new highs by the end of May as investors bid up shares with high dividend payout ratios in preparation for the summer dividend season.
His top stock pick for the moment is CD-R disc maker Ritek (
Chen said CD-R prices, currently at about US$0.50 per unit, are forecast to rise in the second quarter. Furthermore, he said, Ritek boasts a 50 percent profit margin and a high dividend payout ratio.
"So NT$300 is a conservative estimate" of where the company's stock should be, Chen said.
Analysts expect Ritek to earn NT$12.981 per share this year. As of Friday's close, the company traded at just 18.18 times estimated 2000 earnings.
Memory makers move
Makers of memory chips got a big boost last week, largely in anticipation of increased DRAM demand in the second and third quarters of this year.
In addition, there was the 44.1 percent, three-week rise of bellwether DRAM play Micron Technology in the US. At US$134.75, Micron trades at 40.32 times estimated 2000 earnings -- making local DRAM manufacturers seem very cheap in comparison.
Winbond (
Mosel Vitelic (
Powerchip Semiconductor ended at NT$60, up 24.2 percent, while Vanguard International closed at NT$45, up 18.4 percent.
Also leading the TAIEX higher were contract foundry plays Taiwan Semiconductor (
UMC in June is expected to raise as much as NT$60 billion through the sale of American depository receipts. The funds will help pay for several new 12-inch wafer fabs.
Analysts expect TSMC to reach NT$280 before the year's end, while UMC is expected to see NT$180.
Fixed-line play China rebar soars
Telecom concept plays edged higher last week after the Ministry of Transport and Communications (
The licenses permit the three groups to take on state-run Chunghwa Telecom (
Far Eastern Textile (
But by far the biggest winner was China Rebar Group, owner of a 30 percent stake in Eastern Broadband. China Rebar closed limit-up for four straight days last week before finishing at NT$18.90, up 32.2 percent.
Direct links boosts transport stocks
Transportation stocks took off as investors bet that a Chen Administration would mean direct transportation links, possibly as early as this year.
China Airlines (
Shipping stocks also benefitted from the prospects of direct transportation ties. Yangming Marine (
Evergreen Marine (
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