Respected economist Ma Kai (馬凱) warned on Saturday that an exit by the US Federal Reserve from its ongoing quantitative easing (QE) policy could affect share prices in the local market.
Ma said the recent uptrend in the local equity market could be a short-term phenomenon because foreign investors could start to retreat from the trading floor due to a tapering off of the Fed’s US$85 billion a month bond-buying program.
On Friday, the TAIEX closed up 0.79 percent at the day’s high of 8,441.19, the highest level since Aug. 3, when the index finished at 8,456.86.
Since the beginning of this year, the local bourse has risen 9.63 percent, while foreign institutional investors bought a net NT$197 billion (US$6.7 billion) worth of local shares during this period.
Ma said the recent strong showing in the local bourse and regional markets largely resulted from ample liquidity as foreign investors moved large amounts of funds into the region due to rising fund levels after the Fed intensified its efforts to pump money into the market in a bid to stimulate the economy.
The economist said the local equity market cannot always count on fund inflows to move higher: Its upside will be short-lived and will end once the Fed scales back its fund injection efforts.
The market has widely anticipated that the Fed will start to cut its bond buying efforts in a policymaking meeting scheduled for December.