High liquidity paves way for gains in equity prices in Q1: analysts

Taipei-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 in consolidation mode in December with foreign institutional investors on the sell side, the Taiwan dollar remained on an upswing in the month, indicating many foreign investors have kept their funds in the local market instead of moving money out of the country.

Liu Yen-po (???), manager of the UPAMC Taiwan Power Fund of Uni-President Asset Management Co., said he was upbeat that foreign institutional investors will resume buying after the holiday.

Liu said 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 the previous month.

Although foreign institutional investors sold a net NT$34.05 billion (US$1.14 billion) in December, pushing down the weighted index on the Taiwan Stock Exchange by 0.66 percent, the Taiwan dollar still closed up 0.54 percent against the U.S. dollar that month.

In 2017, 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 Dec. 30, the last trading day for 2017, the weighted index gained 0.71 percent to end at 10,642.86. The Taiwan dollar closed up 8.14 percent against the greenback for the year.

Liu said 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.

According to Liu, the average dividend yield in Taiwan is currently about 3.85 percent, the highest in the region, a positive sign for the future movement of the local equity market.

In addition, the U.S. Federal Reserve is expected to maintain a gradual pace in its rate hike cycle after Jereme Powel succeeds Janet Yellen as head of the U.S. central bank in February, which is expected to keep liquidity high, a positive sign for equity prices in 2018. Liu said.

Liu said the bellwether electronics sector is expected to drive an upturn on the local equity market in 2018.

In addition, 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 said.

Source: Focus Taiwan News Channel