Foreign funds, which poured more than NT$100 billion (US$3.02 billion) into the local equity market last month, will continue to play a key role in driving the TAIEX after helping push the index up 9.9 percent last week, analysts said yesterday.
Foreign institutional investors bought a net NT$75.6 billion in local shares last week on expectations that the introduction of Chinese capital would inject extra momentum into the stock market, which soared 591 points to close at 6,583.87 points on Friday.
Mike Chow (周道中), a senior manager at Yuanta Core Pacific Capital Management (元大京華投顧), said foreign funds would probably increase their stakes in the local bourse, which promises better gains compared with its counterparts around the world.
“The economic downturn has prompted central banks around the world to lower interest rates in the hope of stimulating financial activities,” Chow said by telephone. “The monetary policy renders bank savings unattractive and more idle funds will flow into the stock market in pursuit of higher earnings.”
Foreign funds pulled NT$545.8 billion out of Taiwan following the subprime mortgage crisis in the fourth quarter of 2007, and only 20 percent had returned as of the end of last month, Chow said.
Chow said he expected more capital influx in the near future as foreign fund managers well understood that not many investment options were equally competitive before a solid recovery of the world economy.
The TAIEX has gained 43.4 percent this year and is poised to further benefit from improving cross-strait trade after China and Taiwan signed an agreement on financial cooperation and exchange.
Eric Li (李俊毅), a securities analyst at Fubon Asset Management Co (富邦投信), shared the observation that the TAIEX would climb higher if foreign funds continue to display strong interest in local shares.
Li said that the moves of foreign funds are noteworthy as they usually base their investment decisions on medium and long-term profitability of individual shares.
“They have turned from sellers to buyers since March, with tens of billions of NT dollars a day sometimes,” Li said in a note. “They would not have done so if the stocks failed to match their value appraisals.”
Li attributed the buying spree to an expected inflow of Chinese capital estimated at NT$30 billion after Taiwan and China signed a memorandum of understanding on cross-strait banking, securities and futures trading.
“The upbeat sentiment explained why foreign funds bought a net NT$103.7 billion in local shares in April,” Li said. “The rallies will intensify as long as the fever remains unabated.”
However, Eric Lai (賴建承), an analyst at Marbo Securities Consultant Co (萬寶證券投顧), disagreed.
Lai said that while warming cross-strait ties were a positive development, investors would not ignore economic fundamentals.
Lai said that financial and construction stocks, which rose 17 percent and 24.7 percent last week, would enter price adjustments this week to reflect the performance of the sectors.
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