Taipei stocks see sharp swings; investment firms advise caution

The Taipei stock market saw dramatic swings last week, with daily gains and losses often exceeding a thousand points. This volatility reflects divergent market expectations and a heightened risk of significant adjustments, prompting investment firms to recommend a cautious approach. Investors are advised to either "wait and see" or "make small allocations" to avoid excessive risk and maintain portfolio flexibility.

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The Taiwan stock market's recent significant volatility is mainly due to the accumulated gains from AI enthusiasm, triggering adjustments after US stock earnings reports.

The recent turbulence is largely attributed to an over-optimistic sentiment surrounding AI development, followed by a rapid correction in the semiconductor sector. The Taiwan stock market faced immense profit-taking pressure, opening near 42,000 points before rebounding. Although it briefly dipped below the monthly moving average, it ultimately closed the week at 44,169.04 points, a modest 2% decrease over the week.

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Basically, it's a common pattern in bull markets: slow rises followed by sharp drops.

Analysts point to the Philadelphia Semiconductor Index as the epicenter of the downturn. Semiconductors, representing key beneficiaries of AI construction, have seen substantial gains this year. While they experienced a sell-off, they have since resumed an upward trend. Japan, South Korea, and Taiwan, all semiconductor hubs, were impacted, ending the week with losses despite rebounds.

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The market has largely digested inflation concerns... the risk has been mostly absorbed.

Despite the short-term volatility, investment firms maintain a positive long-term view, particularly for AI-related sectors. They note that inflation concerns have been largely absorbed by the market, and while interest rate cuts may be delayed, widespread panic has not ensued. The AI trend is shifting towards components like memory and passive components, indicating sustained demand. With the main index finding support around 40,000 points and corporate profit forecasts remaining stable, a long-term investment strategy focusing on companies with clear profit growth is recommended.

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AI dividends are shifting, and components have prospects.