The local stock market was little changed last week from the previous week after profit-taking emerged around the 8,200-point level, but ample liquidity is likely to support the benchmark index to test the psychologically important level of 8,395 in the near term, analysts said.
The TAIEX ended 0.01 percent higher last week to 8,244.19 points from the previous week, following a 0.95-percent rise in the previous week, the Taiwan Stock Exchange’s data showed.
Moreover, the exchange’s data showed the market’s average daily turnover of about NT$131.1 billion (US$4.22 billion) last week was 7.37 percent higher than the NT$122.1 billion it saw in the previous week, while the outstanding balance of stock loans in the market slightly expanded to NT$297 billion, which analysts interpreted as strong liquidity in the market to warrant a further upside for Taiwan equities.
However, the appreciation of the NT dollar will continue to weigh on market sentiment after the central bank issued a statement last week that measures taken by governments around the world to curb capital inflows were necessary, hinting that it might take further action to prevent the local currency from appreciating too quickly against the US dollar to undermine Taiwan’s export competitiveness.
“For foreign capital inflows, the central bank welcomes foreigners to purchase local equities. However, the central bank dislikes those who come to park their money in banks or in fixed-income products when current interest rates are historically low,” Citigroup Taiwan chief economist Cheng Cheng-mount (鄭貞茂) said in a client note on Friday.
Cheng said the central bank’s statement on Thursday posed a warning to currency traders that it would put more effort into stemming to steep of a rise in the NT dollar.
The NT dollar rose by 0.22 percent against the US currency during the first eight months of the year, but the pace of appreciation accelerated last month after the US Federal Reserve implied it might adopt further quantitative easing measures to boost its economy, driving the US dollar lower.
From Sept. 1 to Friday, the NT dollar appreciated by 3.06 percent against the US currency, according to the central bank’s data. The local unit has risen 2.92 percent so far this year, the data showed.
“Even though the central bank has continued intervening in the local market to purchase the US dollar during the final minute of trading, the NT dollar still has room for further appreciation,” Henry Chen (陳志恆), an investment research head at KBC Concord Asset Management Co (康和比聯投信), said in an e-mailed statement on Friday.
Chen said the appreciation pressure on the NT dollar and the effect of continued capital inflows would support the TAIEX challenging this year’s high of 8,395 points after a near-term market correction between 8,200 and 8,395.
Jessica Huang (黃媺芸), chief investment officer in charge of ING’s mutual funds in Taiwan, said the strengthening NT dollar posed a short-term negative to electronics stocks in terms of currency-exchange losses. However, a higher NT dollar and the central bank’s latest interest rate hike would be positive for asset-backed shares and financial stocks if investors are looking for mid to long-term investment targets.