A stronger economy and continued in-flows of foreign money should keep the Taiwanese stock market buoyant for the next year or two, according to Fidelity Investments. The market is up 19.7 per cent this year, closing at 8,163.41 points yesterday. Investors getting in now would need to take a long-term view and be prepared for high volatility, said Wanni Lin, manager of the fund management company's newly launched Taiwan fund. 'If your investment horizon is over a 12-month period, you should be able to see a pretty reasonable return,' she said. 'If you are a shorter-term investor, then the volatility definitely will be bigger and downside risk higher.' Of eight markets in the region, Ms Lin said Taiwan's had produced both the highest return and the greatest volatility over the past decade. She predicted stronger economic growth - fuelled by increased retail sales, manufacturing output and exports - and continued money flows into the stock market - fuelled by the economic pick-up, relatively low interest rates and strong in-flows of foreign capital - would keep share prices on an upward trend for the next couple of years, barring any increase in political tensions with China. Taiwanese shares were trading at about 28 times earnings, the high end of their five-year range, she said. This meant stock selection would be a crucial determinant of the new Taiwan fund's performance. 'Only good companies with good fundamentals will outperform. All the other companies [whose] share prices increased for no reason, just because the market sentiment was good, will pull back,' Ms Lin said. Among her picks are construction, banking and electronics companies. She said construction companies, which include the full range of property development counters, would benefit from strong government support and a slowdown in supply. Deregulation meant banks were facing increased competition, but some had competitive advantages and would survive the onslaught. Ms Lin said that this sector had been largely ignored by domestic investors. Demand for semiconductors would pick up by the end of the year, she said, which would open the way for higher semiconductor prices next year.