Ample liquidity to lend support to TAIEX: analysts

Chao Hsien-cheng, a manager of the Paradigm Small Capital Fund under Paradigm Asset Management, said Taiwan has witnessed further fund inflows recently because of the ample liquidity in investors' hands around the globe.

The benchmark weighted index on Taiwan's stock exchange ended up 1.52 percent at the day's high of 7,732.87 on Friday, helped by an infusion of funds from foreign institutional investors, who bought a net NT$3.43 billion (US$118 million) in local shares.

The steady stream of fund inflows have also pushed the U.S. dollar below the NT$29.00 mark against the Taiwan dollar in recent intraday sessions, although Taiwan's central bank has intervened to push the greenback above that level by the end of each session. The U.S. dollar closed at NT$29.060 Friday, up NT$0.025 from a day earlier.

Wu Yin-liang, a fund manager at Taishin Securities Investment Trust, said liquidity-driven buying could push share prices higher and even challenge the 8,000-point level this year.

In addition to strong liquidity, Chao said Taiwan's stock exchange should also benefit from a recovery in the global economy, in particular the faster pace of growth in China.

China's economy grew 7.9 percent in the fourth quarter, up from 7.4-percent growth in the third quarter, and the accelerated growth has reinforced investor confidence and boosted market sentiment at home and abroad, Chao said.

Encouraging economic data in the United States, including the recovery in housing starts in December and the latest decline in jobless benefit claims, also point to an improving global economy that should lead investors to take more risks in equity markets, he said.

Chao suggested closely following “China concept stocks” — companies with major interests in China — ahead of the Lunar New Year, when consumer spending in Chinese communities surges.

Wu cautioned, however, that the current earnings season on Wall Street could affect investors' strategies in the short term, and he advised that results released by U.S. high-tech heavyweights, such as Apple Inc. and Microsoft Corp., be closely watched.

Wu said investors should also keep a close eye on fluctuations in the New Taiwan dollar because a rise would be expected to erode the bottom line of the export-oriented electronics sector.

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