Taiwan's stock market will likely encounter technical corrections in the near future after a strong showing this past week resulting from aggressive foreign institutional buying, according to fund manager Wei Yung-hsiang (???).
Wei, who manages the NT$9.8 billion (US$312 million) Taishin China Equity Fund (???????) in Taipei, said selling may soon prevail because of worries over a stronger Taiwan dollar, which could hurt the profits of Taiwanese exporters, in particular in the high-tech sector.
In the week following Monday's return of investors from the four-day Mid-Autumn Festival holiday, the weighted index on the Taiwan Stock Exchange rose 382.32 points, or 4.29 percent.
The market's weighted index closed at 9,284.62, the highest level since May 3, when it ended at 9,294.12.
Taiwan Semiconductor Manufacturing Co. (???), the most heavily weighted stock in Taiwan's market, led the gains, rising more than 8 percent to close at NT$187.50 on Friday. Its market capitalization was up NT$360 billion in one week.
Taiwan's stock market was boosted by strong buying from foreign institutional investors, who bought a net NT$25.93 billion in shares during the week as a growing number of them moved funds into the region, betting on a weaker U.S. dollar.
The U.S. dollar's weakness resulted from expectations that the U.S. Federal Reserve would leave its key interest rates unchanged at a two-day policymaking meeting that concluded on Sept. 21, which is in fact what happened.
Wei said the significant upturn in stocks may lead investors to lock in profits in the near future as the market is seen to have overshot a little bit.
Because the Fed is not expected to raise rates until December, foreign funds could continue to flow into the region and lift the Taiwan dollar, which could hurt the competitive edge of Taiwan's high-tech exporters and prompt investors to sell some of their holdings down the road, Wei said.
Wei said the U.S. presidential election could also affect global financial markets, including the Taipei market, and investors here are remaining cautious before the election's results are known.
If Hillary Clinton wins, it will not be seen by the market as a negative lead, Wei said, but if Donald Trump wins the election, the specter of protectionism could rise in the U.S. and have an adverse impact on world markets.
The silver lining, Wei said, is that Taiwan's economy should improve next year, helping Taiwanese listed companies improve their bottom lines. That in turn would lend support to the local equity market and help fend off selling from technical corrections.
Wei said that when the weighted index falls to the 220-day moving average at around 8,500-8,600 points due to short-term corrections, it could be a good time to buy.
The Directorate General of Budget, Accounting and Statistics raised its forecast for Taiwan's economic growth in 2016 recently to 1.22 percent from 1.06 percent, and anticipated that growth in 2017 growth will hit 1.88 percent.
Source: Focus Taiwan News Channel