Stock rally to continue, may hit 8,400: experts

They made the remarks after the TAIEX closed higher for last week, the first after the New Year's break.

Shares on the Taiwan Stock Exchange, however, retreated in a mild correction Friday as investors took cues from a lackluster trading day on Wall Street Thursday to lock in gains posted in recent sessions.

Friday, the weighted index closed down 30.85 points, or 0.39 percent, at 7,805.99, after moving between 7,773.06 and 7,818.27, on turnover of NT$99.29 billion.

Among the losing electronics stocks, Largan Precision fell 2.67 percent to close at NT$802, and MediaTek shed 6.29 percent to end at NT$305.50.

Friday's retreat however did not dampen the enthusiasm of experts, whose optimism was based on a solution of the U.S. fiscal cliff crisis, reached after the White house and the U.S. Congress adopted bipartisan measures to raise taxes on the wealthiest in the country. Aversion to the crisis raised investors' risk appetite and caused them to take funds away from the United States and bring them to emerging markets, said Yeh Hsien-wen, fund manager with Prudential.

Overseas funds have been able to prop up Taiwan stocks since 2010, despite a lack of impressive earnings results from local enterprises, he said.

“If trade volume remains heavy, it's possible the TAIEX will challenge the 8,170 mark, the peak of the previous upswing,” he said.

Foreign investors have been active in purchasing local stocks over the past month, indicating their upbeat sentiment, Yeh added. By comparison, local institutional investors have been more conservative, taking a wait-and-see approach, he said.

“In my view, local investors will play a critical role in lifting daily trade volume to NT$120 billion, which is needed to keep the TAIEX at 8,000 and send it above,” he said.

Credit Suisse is the most optimistic among foreign institutional investors operating in Taiwan, predicting that the TAIEX will reach 8,400 this year, 100 points shy of the so-called “8,500 heavenly cap” that some say will never be surpassed.

Under Taiwan's stock capital gains tax regulation, from this year tax will be levied on investors making gains after the TAIEX tops 8,500. It is therefore expected that a selling spree will always emerge prior to 8,500.

Some analysts, meanwhile, are more conservative, urging investors to exercise caution now that the TAIEX has staged a strong rebound, leaving little room for the weighted index to go up further.

One expert representative of this school of thought is Chu Shiang-sheng, chairman of Hua Nan Investment Trust who reminded that the TAIEX has risen some 700 points from its low last year.

“From an empirical standpoint a rally of 200 to 300 points in a single month is not that difficult,” Chu said. “Yet, the current upswing is due largely to strong government support. A rally in the first quarter is not necessarily a good thing, especially if companies give weak fourth-quarter financial results.”

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