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Analyst sees further gains for small, mid-cap mutual funds

TAIPEI--Mutual funds targeting small and mid-cap stocks listed in Taiwan are expected to make further gains in 2014 on the back of ample liquidity after performing well in 2013, an analyst said yesterday.

Buying in small and mid-cap stocks, which have turned technically healthier due to the recent gains, is also expected to continue because of a likely recovery in both the domestic and global economies, the analyst said.

JP Morgan Taiwan Best Selection Fund manager Yeh Hong-ru said Taiwan's stock market appeared resilient last year in the face of worries over an exit by the U.S. Federal Reserve from its monthly bond buying program, outpacing other regional markets.

The Taiwan stock exchange's benchmark weighted index rose 11.85 percent in 2013, ahead of Hong Kong's gain of 2.55 percent and Seoul's 0.72 percent rise. The Shanghai and Singapore markets lost 6.78 percent and 1.21 percent, respectively, last year.

Yeh said small and mid-cap stock funds in Taiwan outperformed the broader market in 2013 with gains of more than 20 percent that was helped by the booming over-the-counter (OTC) market, where the index closed up 25.4 percent for the year.

The analyst said that although the Fed announced on Dec. 18 that it planned to scale down its quantitative easing program by US$10 billion a month from January, the market would still have plenty of liquidity.

The U.S. central bank will continue to inject US$75 billion into the market every month and maintain interest rates at historically low levels, and other central banks were keeping markets flush with liquidity to try and stimulate their economies, Yeh said.

In Taiwan, the central bank left its key interest rates unchanged for the 10th quarter in a row at its quarterly policymaking meeting held in late December.

Yeh said the growing number of small and mid-cap companies launching listings on the OTC market would draw buying to shares of other companies in the same sectors to keep pace with the high prices of the new offerings.

Under such favorable circumstances, small and mid-cap stock funds have a good chance to gain further as the New Year begins, Yeh said.

The local bourse as a whole, the fund manager said, is likely to move higher in 2014 as Taiwan has relatively sound economic fundamentals, is sitting on massive foreign exchange reserves and will likely keep the exchange rate stable.

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