The TAIEX may consolidate in the near term because investors are likely to turn cautious after the benchmark index hit a 29-month high last week on inflows of hot money to Asian markets, analysts said.
The local bourse closed up 1.09 percent to 8,449.34 on Friday, the highest since June 2008, after the US Federal Reserve on Wednesday introduced a new round of quantitative easing through debt purchases, aiming to boost US economic growth.
The US stimulus drove more funds to Asian markets in anticipation of larger gains, reviving concerns a flood of loose money could upset regional economies as the rallies in their currencies may weaken exporters’ profits.
Domestic shares may consolidate in the short run, with a correction increasingly likely on the main index because the recent rallies were not supported by economic fundamentals, Allianz Global Investors Taiwan Ltd said in a recent statement.
“Foreign funds will play a critical role in deciding the TAIEX direction later this month” after buying a net NT$61.78 billion (US$2.02 billion) of local shares last week, Allianz said.
Foreign funds, which account for one-third of the stock trade, bought a net NT$40.37 billion and 78.96 billion in local shares last month and September, after paring a net NT$46.22 billion in August, Taiwan Stock Exchange data showed.
Allianz attributed the increasing stake by foreign institutional players to anticipation of gains in regional currencies and they may reverse the strategy if the room for appreciation proves smaller than expected.
The New Taiwan dollar closed at NT$30.56 against the US dollar in Taipei on Friday, rising 4.8 percent in the last two months when expectations of the Fed’s new stimulus started to impact.
The pace of NT appreciation lagged behind the stock index’s 10.94 percent increase, indicating the local currency is relatively stable, Allianz said.
Material stocks including textile and plastic issues made the biggest advancement, driven more by rising costs rather than strong demand, the money manager said.
Before the global tech correction cycles come to an end, Allianz said it would shun aggressive expansion in local share holdings and instead maintain a steady approach.
The firm said it favored big tech firms with attractive valuations because the advent of Christmas and Lunar New Year may boost demand for electronic products including notebook personal computers and flat-screen TVs.
Concord Securities Corp (康和證券) echoed the cautious sentiment.
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