Stocks to rally after Chinese New Year, despite current lull

The weighted index TAIEX on Friday closed down 23.41 points, or 0.30 percent, at 7,672.58, as the electronics sector remained weak following the decline posted by the tech-heavy Nasdaq index in New York overnight, dealers said.

Lee Chun-yi, fund manager with Allianz, said the recent tepidness in Taiwan stocks had to do with a lack of positive incentives in the market. Investors, meanwhile, are taking a wait-and-see attitude in the lead-up to the Lunar New Year break, he said.

“The current correction may linger from now until before the Chinese New Year due to thin trade volume,” he said.

Yet, with an overall macroeconomic improvement in Taiwan and an easing of the European debt crisis, stocks should be viewed with optimism in the long run, he said.

According to him, debt negotiations between the White House and the U.S. Congress will not produce a large impact on Taiwan stocks, which will be more affected by China's infrastructure demands and orders for the island's electronics sector.

Stock trading will be suspended for 11 days in a row starting Feb. 7, two days before the nine-day Lunar New Year break that begins on Feb. 9. Trading will be suspended two days early to leave room for bank settlement over the last two business days before the break, and will resume on Feb. 18.

Shen Hung-ta, fund manager with Capital Securities, said the long break may cause investors to be hesitant to hold their stocks over the break. He urged investors not to panic because for the past ten years the TAIEX has always risen, at an average rate of 0.73 percent, on the last day of trading before the Chinese New Year. A week prior to that, stocks had risen by an average 0.4 percent.

Meanwhile, with various economic indicators on the rise, showing signs that the island's economy is recovering, a rally in the long-term is expected, especially for stocks that are subject to the cyclical nature of the economy, he said.

He dismissed suggestions that the recent selling binge by foreign investors is a sign of troubles to come. He cited empirical data which suggested that after funds leave emerging markets in a given year, they return over the following two years. As Taiwan stocks are relatively inexpensive among emerging market stocks, international funds are set to flow into the island, he said.

“While a correction is taking place right now, the rising economy and increasing profitability by enterprises are expected to boost Taiwan stocks,” he said.

Shih Sheng-yuan, fund manager with Jih Sun, pointed out that Apple's disappointing financial results will serve as a disincentive for Taiwan stocks before the Lunar New Year. Yet, with the TAIEX finding technical support at low points and the government's resolve to prop up the market, room for further growth is still expected, he said.

Speaking on Apple, he urged investors not to worry. “Its lackluster performance has been expected by the market, which since 2012's forth quarter has begun to lower their holdings of Apple,” he said. “Meanwhile, Apple will launch new products in the third quarter, and historically speaking, supply chain partners will see a boost in their stocks one to two months prior to the launch.”

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