Taiwan index rallies post presidential election result

The Democratic Progressive Party’s victory last Saturday has helped to boost Taiwan’s weighted index back near to its peak.

The Taiwan Capitalization Weight Stock Index (Taiex) is back trading near its peak, following the Democratic Progressive Party’s win at the latest presidential election.

On the back of the pro-independence party’s win on Saturday (11 January) with 57.1% of votes for the incumbent President Tsai Ing-Wen, the Taiex has opened Monday’s market at 12,069.61 – 0.37% above the previous week’s close.

This was proceeded by some sideways trading, before the index climbed 0.11% at 9.35am to hit 12,083.26, just slightly below a 52-week apex of 12,122.45 achieved on 18 December 2019.

How long will this momentum last?

Two local analysts expect the index to continue posting gains in the next month.

According to Li Fang-kuo, chairman of President Capital Management, Taiwan’s financial markets ‘tend to rise after an election, as uncertainty is removed’.

Based on the last six presidential elections, the Taiex climbed by an average of 7.4% in the first 30 days after results day.

Upcoming global tailwinds, including the trade deal signing taking place this week between US and China, would mean ‘the bullish trend will continue for Taiwan’s market’ said Shelly Lee, chairman of Mega International Investment Services Co.

She added that in the immediate term, fund managers and investors will likely pay attention to beneficiary stocks in the manufacturing and technology sectors.

On the flipside, experts say a pro-independence victory would lead to a drop in tourism numbers and stocks. Since Tsai took office in 2016, Chinese arrivals – which account for the majority of foreign visitors – has dipped roughly 40%.

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Taiex could hit record levels by April

Li predicts that the index will hit record prices by April this year, with foreign and domestic capital inflow expected to continue.

Although the US-China trade war had rendered most global markets unstable in the last 12 months, an estimated US$12 billion of net inflows through the first 11 months of the year had kept the Taiwan stock market buoyant.

The benchmark has been rising steadily since August 2019, gaining over 16% during this time.

A strong outlook for the local technology sector, in particular semiconductors, is also expected to trigger further growth for the overall stock market, said Vincent Tsui, senior Asia analyst at Gavekal Research.

The deployment of 5G technology and a growing trend of Chinese technology companies engaging non-US chip suppliers should also lead to higher earnings in the next 12 months, said KGI Securities.

The three largest Taiwan semiconductor companies reported a 19% increase in combine revenue in the third quarter last year, Gavekal Research data showed.

Taiwan Semiconductor Manufacturing Co, which constitutes almost a quarter weightage of the Taiex, also reported a 9.7% sales growth last November year-on-year.

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