The US Federal Reserve’s decision on Thursday to leave interest rates unchanged removed uncertainty from the local capital market yesterday.
The TAIEX yesterday gained 0.2 percent to close at 8,462.14 points on turnover of NT$94.31 billion (US$2.89 billion), Taiwan Stock Exchange data showed.
The New Taiwan dollar slipped 0.003 percent, or NT$0.001, against the US dollar on turnover of US$803 million, ending two days of gains as the market turned tentative in anticipation of the central bank’s board meeting next week, the central bank said on its Web site.
Financial Supervisory Commission (FSC) Chairman William Tseng (曾銘宗) yesterday said the Fed decision helped the local equity market progress toward stability in the short term, as a major cause of uncertainty dragging down investment sentiment was lifted.
“For the time being, the Fed statement has put an end to concerns surrounding a possible rate hike, allowing the local equity market to return to normalcy,” Tseng said.
Daily turnover on the TAIEX is expected to pick up and share price movement will begin to reflect companies’ fundamentals, he said.
As of Tuesday, aggregate net foreign fund inflows totaled US$194.8 billion, down from US$204.8 billion in May, indicating that foreign institutional investors had begun moving funds out of Taiwan well ahead of their expectations of a rate hike this month, according to the FSC.
Tseng said that foreign institutional investors would likely slow the pace of their capital outflows from Taiwan, but it is still too early to determine whether they will make a significant return to the local market.
The Fed decision to delay the rate hike will also help stabilize international markets and ease some difficulties faced by the local insurance industry, which had turned more tentative toward investing abroad, as rising volatility pushes up the costs of hedging against risk, Tseng said.
However, Tseng warned that uncertainties might soon flare up again ahead of additional Fed meetings slated to take place next month and in December.
Tseng said that he hopes to see the legislature resolve dissent over a proposed bill to modify the capital gains tax, another primary cause of uncertainty among investors, but lawmakers remain mired in a deadlock following a round of cross-caucus negotiations held yesterday.
Standard Chartered Bank Taipei-based economist Tony Phoo (符銘財) stood by the bank’s expectation for a rate hike by the Fed in December and two more additional rate increases next year.
“The most important factor for equity investors to consider is not the first time the Fed raises rates in a cycle,” Phoo said.
Instead, investors should focus on the last time the rate is changed in a cycle, the economist said.
“The outcome of the Fed’s decision this week will not necessarily mark the end of the current cycle, and investors can expect to see heightened market volatility,” said Adam Petryk, head of multi-asset investment and solutions at QS Investors, an asset management subsidiary of Legg Mason Inc, at a media briefing in Taipei on Thursday.
Petryk said that the company’s Asian equity investment strategy maintains its overweight rating on Taiwanese semiconductor sector stocks, given their attractive dividend payout performance.
Petryk added that the TAIEX’s diminished daily turnover has not triggered any alarms over its strategy.
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