The US Federal Reserve’s first interest rate increase in nearly a decade is not expected to cause a significant flight of money out of Taiwan, Yuanta Securities Investment Consulting Co (元大投顧) said.
The Fed’s rate hike on Wednesday was followed by the central bank’s decision the next day to cut interest rates — and that decision might generate a boon for the TAIEX by bringing in the liquidity the market needs, Yuanta said on Friday.
Just hours after the Fed said it was raising key rates by 25 basis points, Taiwan’s central bank cut its policy rates by 12.5 basis points for the second time in three months.
“This helps market liquidity, which is good news for investors,” Yuanta’s equity strategist Vincent Chen (陳豊丰) said in a client note.
Chen said the impact of the Fed’s rate hike on Taiwan’s stock markets would be similar to the round of tightening in 2004, when foreign institutional investors racked up net sales of Taiwanese shares for two to three months before significantly increasing their holdings.
“Since the Taiwan market endured a severe correction in August, we believe room for a further slump is limited,” Chen said.
In addition, 10 out of 13 stock markets worldwide had risen within six months following the Fed hike in 2004, he said.
Based on Taiwan Stock Exchange statistics, foreign institutional investors turned to net buyers of local equities after Wednesday, having net sold for two sessions earlier the week, leading to a net purchase of NT$1.05 billion (US$31.7) in Taiwanese shares for the whole of last week.
Despite signs of bargain-hunting on Friday, the TAIEX closed down 0.75 percent to 8,257.32, compared with a 1.65 percent gain in previous session.
For the week, the benchmark index rose 1.74 percent from the previous week.
Overall, the TAIEX is expected to fluctuate between 8,000 and 9,000 points next year, supported by resilient share price performance of leading semiconductor companies, as they are expected to begin outperforming in the first quarter as the financial sector begins to stabilize, Yuanta said.
Leading electronic components makers in Apple Inc’s supply chain are expected to start to perform well in the third quarter next year, while non-technology firms might see their shares continue advancing in cyclical rotation next year thanks to good fundamentals, Chen said.
Other positive catalysts for the TAIEX next year include an anticipated rise in mergers and acquisitions by Taiwanese companies, high dividend payout, low valuation and the anticipated economic recovery in the US, he said.
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