The TAIEX is likely to trade in a narrow range in the short term as investors turn cautious ahead of potential interest rate hikes by the US Federal Reserve next week, analysts said yesterday.
The benchmark index shed 0.97 percent, or 94.84 points, to close at 9,658.61 on turnover of NT$88.56 billion (US$2.85 billion), as foreign institutional investors net sold NT$10.61 billion, Taiwan Stock Exchange data showed.
The TAIEX’s retreat fell in line with a 0.5 percent drop in the local currency to NT$31.02 against the US dollar in Taipei trading, fueling concerns that hot money is moving to the US to pursue better yields, Hua Nan Securities Co (華南永昌證券) chairman David Chu (儲祥生) said.
“Foreign funds play a decisive role in the TAIEX’s movement and they would remain elusive until the Fed unveils its monetary policy and set the tone for future moves,” Chu said by telephone.
The Fed is due to unveil its monetary policy after a two-day meeting on March 14 and 15, while Taiwan’s central bank is to convene its quarterly board meeting on March 23.
Chu said he agreed with mainstream market expectations that the Fed would raise interest rates by 25 basis points thrice this year.
A faster pace would attract more funds seeking higher yields to the US, while a milder approach would encourage funds to flow to emerging markets, including Taiwan, in pursuit of alternative investment opportunities, Chu added.
Central bank Governor Perng Fai-nan (彭淮南) last week said about US$5 billion of hot money found its way to Asia, with Taiwan absorbing 60 percent of the total.
The trend may have taken a turn given that foreign investors cut their local shareholdings by NT$4.74 billion this month, Masterlink Securities Investment Advisory Corp (元富投顧) president Liu Kun-hsi (劉坤錫) said, citing stock exchange tallies.
Liu said it is premature to speculate if earlier liquidity-driven rallies would reverse or resume.
Daily turnover recently eased to a range of NT$70 billion to NT$80 billion, from more than NT$100 billion at the height of fund inflows in January and last month, Liu said, adding that the volume might shrink further in the absence of foreign players.
Liquidity aside, healthy economic fundamentals are needed to drive the TAIEX above the 10,000-point mark, such as strong demand for latest-generation technology devices, Liu said.
Apple Inc is said to redesign its iPhone to mark its 10th anniversary and local technology firms in the supply chain may benefit from replacement demand.
“That may be true, but inventory building may not be evident until May or June,” Liu said by telephone.
First Securities Investment Trust Co (第一金投信) chief investment officer Richard Kao (高子敬) said the TAIEX would resume its rally if the Fed offered a dovish guidance.
US President Donald Trump and his protectionist rhetoric provide sufficient reasons for being lenient, Kao said.
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