Stocks on the local bourse are expected to be weighed down by the possibility that the US Federal Reserve could announce a third-round quantitative easing (QE3) next month, stock market analysts and fund managers said yesterday.
That was despite US Federal Reserve Chairman Ben Bernanke calling on the US government to use other economic stimulus -measures to shore up growth rather than monetary policy. However, the Fed has decided to extend its monetary policy meeting next month from the standard one day to two days, to reportedly hammer out a consensus over QE3.
Last week, the benchmark TAIEX rebounded 1.4 percent, or 102.14 points, from a week earlier to close at 7,445.1 on Friday, taking its cue from the rising shares in the US and European stock markets and improved corporate earnings reports.
Regaining confidence, three major institutional investors bought a net NT$3.03 billion (US$104.27 million) in local stocks last week, with net buying from foreign institutional investors totaling NT$1.87 billion, ending seven straight weeks of net selling of local stocks, Taiwan Stock Exchange data showed.
“The Fed’s possible adoption of QE3 in September will increase pressure on Taiwan’s stock market in the near future,” said Henry Chen (陳志恆), an investment research director at KBC Concord Asset Management Co (康和比聯投信).
“The QE3 measures will have a negative impact on local electronics companies, as such monetary easing measures will cause the US dollar to weaken further against most Asian currencies, including the New Taiwan dollar,” Chen said by telephone yesterday.
In addition, a strong NT dollar will act as a drag on the pricing strength of local electronics companies and exporters, who were already suffering from higher labor costs and increasing raw material prices, Chen said.
All these negative factors are likely to drive down the share prices of those companies and weaken the momentum on Taiwan’s stock market, Chen added.
Electronics shares are the most heavily traded stocks on the local stock market, making up at least 50 percent of daily turnover.
Masterlink Securities Investment Advisory Corp (元富投顧) president Liu Kun-hsi (劉坤錫) offered a more optimistic view on the effect of new economic stimulus measures in the US on local stock market through monetary policy.
“No matter what measures the US is going to take, particularly those by the US Fed, to spur growth, they will have little impact on Taiwan’s stock market as the major risk for the local stock market is a lack of investor confidence,” Liu said by telephone yesterday.
Sunny Chung (鍾兆陽), a fund manager at Allianz Global Investors Taiwan Ltd (德盛安聯證券投信), said: “China-related stocks could be a safe haven for local investors in the short term.”
“These stocks usually have lower linkage with economic sentiment in the US and the eurozone,” Chung said in an e-mailed statement on Friday.