Thu, Jul 05, 2018 - Page 11 News List

Fubon says local bourse could remain turbulent

DOWNSIDE RISKS:Volatility is least likely to affect the US, while more rate hikes by the Federal Reserve could trigger a capital flight from emerging markets, an analyst said

By Crystal Hsu  /  Staff reporter

The local bourse might remain volatile in the second half of this year as uncertainties over the US-China trade war, the global economy and capital outflows might continue to unnerve investors, analysts said yesterday.

The global economy might take a hit if downside risks worsen, Fubon Financial Holding Co (富邦金控) chief economist Rick Lo (羅瑋) said.

Global equity markets last year were peaceful and experienced a boom because trade protectionism failed to materialize, as it has done this year, he said.

The US has imposed tariffs on imports of solar panels, washing machines, and steel and aluminum products. Additional duties on US$34 billion worth of Chinese goods are to come into effect on Friday and Beijing has pledged to retaliate.

The US Federal Reserve, which already raised policy rates twice this year, might undertake two additional rate hikes, as the world’s largest economy stays on course to expansion, Lo said.

That could trigger a capital flight from emerging markets, including Taiwan, even though the local market and the New Taiwan dollar have been resilient so far, Fubon Financial said, forecasting Taiwan’s GDP to grow 2.5 to 2.6 percent this year.

The TAIEX has risen 0.7 percent so far this year, while the NT dollar shed 2.19 percent against the US dollar, the Web sites of the Taiwan Stock Exchange and central bank showed.

However, foreign institutional players have reduced local holdings by a net NT$279.4 billion (US$9.2 billion) as of Tuesday, higher than the volume for the whole of 2011, amid Europe’s debt woes.

Volatility is likely to affect Wall Street the least as the US economy might expand 2.7 percent, faster than last year, while Europe and Japan are likely to lag, Lo said.

Schroder Investment Management Taiwan (施羅德證券投資) said foreign funds tend to seek shelter in major reserve currencies in times of tumult and their movements could sway market confidence.

A capital outflow of NT$300 billion would account for only 0.8 percent of the TAIEX’s market value, Schroder chief investment officer Jordan Chen (陳朝燈) said.

Chen said he expects the local equity market to receive support from healthy corporate earnings results.

Corporate profits rose 21.6 percent to NT$535.7 billion in the first quarter of this year, he said, adding that the uptrend might continue.

A weak NT dollar would allow local exporters to post foreign-exchange gains, Chen said.

Domestic life insurance companies might increase holdings in local shares, prompted by accounting rule changes that limit their foreign investment, Chen said.

Schroder Taiwan is positive about technology names linked to the development of artificial intelligence, electric vehicles, big data analysis and high-performing chips.

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