The main bourse has seen a share price increase of nearly 4 percent this month, supported by the consecutive net buying of shares by foreign institutional investors, lifting the TAIEX to rise 6.9 percent so far this year and outperform many regional peers, equity strategists said last week.
However, the market’s further growth, if there is any, will rely on more solid support from retail investors and favorable policies from the government ahead of the elections next year, while the turmoil within the Chinese Nationalist Party (KMT) is likely to have a short-term impact, they said.
The TAIEX gained 0.26 percent last week and closed at 8,230.68 points on Friday, with an average daily turnover of about NT$78.55 billion (US$2.65 billion) last week, data from the Taiwan Stock Exchange showed.
“Taiwan’s stock market is closely linked to the change in international situations and the appetite of foreign investors,” Prudential Financial Securities Investment Trust Enterprise Co (保德信投信) fund manager Bevan Yeh (葉獻文) said in a client note on Friday.
From Aug. 28 to Wednesday, foreign institutional investors had bought a net a net NT$129.7 billion (US$4.37 billion) in Taiwanese shares for 20 straight days, pushing up the TAIEX by 5.9 percent, the stock exchange's data showed.
Yeh attributed the foreign investors' net buying to their asset allocation in regional markets and because of Taiwan’s stable market conditions. But in the near term, he thinks the local bourse is likely to fall into consolidation mode as US budget impasse could cast shadow over the market.
William Dong (董成康), equities and research head of UBS Securities Taipei branch, said one deficiency of the overall market is the lack of retail participation, evidenced by stagnant margin loans and a limited pickup in trading volume.
“While the Financial Supervisory Commission has announced measures to boost market liquidity, such as relaxing the uptick rule exemption to include all margin traded stocks, this has yet to have a material impact,” Dong said in his latest market strategy report on Friday.
Dong said retail investors were also reluctant to participate in the market over concerns about the low industry visibility within the nation’s technology sector, in addition to their lingering concern over the timing of the US Federal Reserve’s scaling back of its quantitative easing.
For the market to show substantial progress from its current range, HSBC Securities believes investors need to hear favorable policies announced by the government before the seven-in-one elections for municipalities, counties and townships at the end of next year.
“The election cycle starts next year and this is typically favorable for the market as the ruling party tends to launch more populist, progrowth policies ahead of the election,” HSBC Securities (Taiwan) Corp Ltd analysts Jenny Lai (賴惠娟) said in a separate note.
As for the dispute between President Ma Ying-jeou (馬英九) and Legislative Speaker Wang Jin-pyng (王金平), Lai said the impact on equities would likely be “short-lived and limited,” because the market tends to pay attention to the economic outlook for next year and the Ma-Wang dispute is unlikely to affect economic policy.