Taiwan stocks are expected to continue their retreat this week from last Wednesday's 15-week closing high as investors fret over near-record oil prices and the demand outlook for the tech industry.
Taiwan's main TAIEX share index ended last week up 1.3 percent at 5,892.21 points, recouping all the ground it lost the previous week, but off its midweek best. The index has risen about 12 percent since the year's trough in early August.
"On the one hand, oil prices are a concern and on the other, we are not sure how strong demand for electronics will be in the coming peak season," said Kevin Lin, a fund manager at Shinkong Investment Trust.
Lin said the index could test as low as 5,750 this week if cautious investors leave the market.
Taiwan relies on imports for virtually all its oil needs, making high world crude prices a concern for investors.
Crude oil rose as high as US $49 a barrel on Thursday, just 40 cents below the $49.40 record set on August 20, and remained close to those levels Friday on supply concerns, even after the United States said it would lend refiners crude from the Strategic Petroleum Reserve (SPR).
Investors could avoid tech shares, which make up about 40 percent of Taiwan's total market capitalisation, analysts said, in the face of weak demand signals from the industry.
The world's top contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC) slid 2.67 percent to T$43.70 ($1.3) and Mediatek Inc, the world's biggest supplier of DVD chips, was off 4.72 percent at T$222.00 on Friday.
TSMC and archrival United Microelectronics Corp (UMC) released record sales in August but analysts say demand could ease in the fourth quarter, when multinational PC vendors usually ramp up orders before Christmas.
Europe's top consumer electronics group Philips Electronics N.V. cut the forecast for its closely watched chip unit on Friday and predicted a significant slowdown for the semiconductor industry next year.
TSMC is nearly one-fifth owned by Philips, which is also a big customer of the Taiwan company.
One factor supporting the Taiwan market could be last week's US Federal Reserve interest rate hike.
Economists say the quarter percentage-point increase to 1.75 percent would likely be followed by a similar lift in Taiwan, benefiting insurance companies and banks through interest-rate sensitive assets and higher margins.
China Life Insurance Co Ltd shares finished down 1.87 percent at T$21.00 on Friday. But the stock has risen about 19 percent over the past month.
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