Fund managers said they would stick to their bullish outlook for the local stock market in the -medium to long term as the slowing appreciation of the local currency eases concerns about the impact of foreign exchange erosion on the earnings of local electronics companies and the upgrade of the local stock index by MSCI would help buoy local share prices.
The benchmark TAIEX tumbled 5.86 percent to close last week at 8,609.86, with electronics and -financial shares suffering the brunt of the readjustment. Tech shares declined more than 6 percent and financial stocks plummeted 9 percent from a week earlier, Taiwan Stock Exchange Corp data showed.
Electronics shares usually make up more than 50 percent of the total turnover of the stock market. Turnover reached NT$620 billion (US$21.21 billion) last week, according to the stock exchange.
Foreign investors sold a net NT$42.15 billion of stocks last week, the exchange’s data showed.
The slower appreciation of the NT dollar relative to its US counterpart is expected to ease the pressure of foreign exchange losses on electronics shares and provide a boost to the local stock market, Chang Ching-i (張靜宜), chief investment officer at HSBC Global Asset Management Taiwan Ltd (匯豐中華投信), said in a press release.
The NT dollar rose 0.1 percent last week to NT$29.23 against the US dollar after retreating from a new high of NT$28.94 during -intra-day trading on Friday.
Chang said the weaker currency encouraged investors to increase their holdings in large-cap electronics stocks on Friday.
Financial stocks are expected to regain strength in the medium to long term as financial service providers benefit from rising interest rate spreads when the central bank raises key interest rates later this year to contain inflation, Chang said.
That optimistic view of the nation’s stock market was also based on a recent Morgan Stanley Capital International (MSCI) quarterly review of its own indices released on Friday, with Taiwan receiving upgrades in the Emerging Markets Free Index and Asia ex-Japan Index.
In this month’s Quarterly Index Review by MSCI, the weight of the local stock market was increased 0.08 percent to 12.17 percent in the Emerging Markets Free Index, and expanded 0.13 percent to 20.87 percent in the Asia ex-Japan Index, MSCI data showed.
This marked the first time the nation has received a double--upgrade in the MSCI since the Economic Cooperation Framework Agreement (ECFA) was signed with China last June, having been downgraded in both indices in November’s quarterly review.
However, Peter Kurz, head of Taiwanese equity research at Citigroup Global Markets Inc, warned in the latest report that there could be a further pullback in both the NT dollar and local stock market.
“The NT dollar has significant outpaced the Taiwan stock market recently, while the latter leads the former typically. If such remains the case, we could see more downside in both the currency and the stock market,” Kurz said.
Although the NT dollar has further downside risk, Sunny Chung (鍾兆陽), a fund manager at Allianz Global Investors Taiwan Ltd (德盛安聯證券投信), said that the currency’s recent advance could delay the recovery of the stock market as shares in export-oriented firms would need more time to factor in the impact of the NT dollar’s appreciation.