The monetary policy of the US Federal Reserve is expected to continue to dictate the local equity market in the short term after the TAIEX suffered heavy losses last week, analysts said on Saturday.
They said investors should also remain alert to the movement of the yen because the currency’s value could serve as an important indicator as to whether foreign institutional investors start to move funds out of the region.
The weighted index on the Taiwan Stock Exchange on Thursday fell below the 8,000-point mark for the first time since April 23 as investors took cues from a falling Wall Street to cut their holdings in the local bourse amid fears of an early exit by the Fed from its bond-buying program.
On Friday, the local bourse failed to stage a technical rebound from a 2.02 percent plunge seen on Thursday, as market sentiment remained haunted by concerns of a possible policy change by the Fed.
JP Morgan (Taiwan) Taiwan Best Selection Fund manager Yeh Hung-ju (葉鴻儒) said that as the Fed holds a policymaking meeting tomorrow and on Wednesday, the possibility the US central bank will announce a scaling-down of its stimulus package at the meeting is expected to keep many investors wary.
Currently, the Fed spends US$85 billion every month to buy government bonds and mortgage-backed securities to stimulate the US economy.
With Washington reporting a slew of positive economic data, such as on home sales and retail sales, markets have become more cautious about the Fed’s next move.
Yeh said that although he thinks the possibility of the Fed changing course any time soon is low, many investors remain anxious ahead of the meeting.
He said that even if the Fed decides to cut the size of its bond purchases, the global market remains awash in liquidity, which could continue to lend support to the equity markets.
Apart from the Fed concerns, Jin Sun Optimization Fund manager Tsai Yun-ta (蔡昀達) said investors should pay close attention to the value of the yen, which has made significant rebounds against the US dollar in recent sessions.
Tsai said that if the yen stops appreciating after its recent jump, it will mean that funds could start to flow out of the region, which could create volatility in regional equity markets.