Ample liquidity on the local market is expected to boost equity prices in the first quarter of this year, after foreign institutional investors return to the trading floor from their new year holiday, analysts said.
While the local main board was last month in consolidation mode with foreign institutional investors on the sell side, the New Taiwan dollar remained on an upswing, indicating many foreign investors have kept their funds in the local market instead of moving money out of the nation.
Uni-President Asset Management Co’s (統一投信) UPAMC Taiwan Power Fund manager Liu Yen-po (劉彥伯) said he was upbeat that foreign institutional investors would resume buying after the holiday.
Local equity prices are expected to ride the wave of “January effects,” which refers to seasonal gains in the month, with institutional investors resuming buying after pocketing profits and closing their books last month, Liu said.
Although foreign institutional investors sold a net NT$34.05 billion (US$1.15 billion) last month, pushing down the weighted index on the Taiwan Stock Exchange by 0.66 percent, the NT dollar still closed up 0.54 percent against the US dollar.
Last year, the weighted index on the main board rose 15.01 percent, marking the second year the market has posted gains after foreign institutional investors registered net buying of NT$155.23 billion for the year.
On Thursday last week, the last trading day of the year, the weighted index gained 0.71 percent to end at 10,642.86. The NT dollar closed up 8.14 percent against the greenback for the year.
High dividend yields in Taiwan are expected to encourage foreign institutional investors, who are sitting on ample funds, to pick up local equities after trading resumes following the new year holiday, Liu said.
The average dividend yield in Taiwan is about 3.85 percent, the highest in the region, a positive sign for the future movement of the local equity market, Liu added.
The US Federal Reserve is expected to maintain a gradual pace in its rate hike cycle after Jereme Powel next month succeeds Janet Yellen as chairperson of the US Central Bank, which is expected to keep liquidity high, a positive sign for equity prices next year, Liu said.
The bellwether electronics sector is expected to drive an upturn on the local equity market this year, Liu said.
Demand for semiconductors is expected to remain solid at a time when many firms are keen to pour funds into the development of technologies such as 3D sensors, high-performance computing, 5G communications and “smart” automotive applications, Liu added.
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