High liquidity in stock market set to fade: analysts

Taipei-The high liquidity that has given a big boost to shares in Taiwan in recent months could fade as Treasury bill yields in the United States climb, analysts said Monday.

The fundamentals of many companies listed on Taiwan's stock market, in particular in the high-tech sector, remain sound, however, and should lend support to their share prices even as liquidity goes down, analysts said.

Chou Chun-hung (???), fund manager of the CTBC Taiwan Small-cap Fund, told CNA that rising U.S. treasury yields sent ripples through the markets in the United States and in turn affected other markets, including Taiwan.

The yield of the benchmark 10-year U.S. treasury bills hit as high as 1.61 percent at one point Thursday, its highest level since February 2020, before falling to around 1.41 percent on Friday.

On Friday, the Taiex, the Taiwan Stock Exchange's main weighted index, plunged 3.03 percent to close at the day's low of 15,953.80 after foreign institutional investors sold a net NT$94.41 billion (US$3.34 billion) in shares, the highest foreign institutional net sell ever in a single day.

For the week, the Taiex lost 2.37 percent, with Taiwan Semiconductor Manufacturing Co. (TSMC), the most heavily weighted stock in the market, falling 6.55 percent as rising U.S. treasury yields hurt stocks such as TSMC that have high earnings to price ratios.

The Dow Jones Industrial Average fell 1.5 percent and the tech-heavy Nasdaq index dropped 0.6 percent on Friday after Taiwan's stock market closed. For the week, the Dow lost 1.8 percent, and the Nasdaq tumbled 4.9 percent amid volatility in the U.S. bond market.

Chou said it will be hard for Taiwan's markets to calm down if markets in the U.S. become more volatile.

Echoing Chou, Yeh Hsien-wen (???), fund manager of the Prudential Financial High Growth Fund, said the rising U.S. Treasury yields have led many investors to move out of stocks and into bonds, reducing the liquidity in the stock market.

In addition, concerns over inflation have been on the rise, Yeh said, and such fears could lead major central banks around the world to tighten monetary policy, which would deal another blow to stock markets.

Yeh, however, remained upbeat about corporate earnings in the local tech sector in 2021 as global supply from pure play wafer foundry operators, such as TSMC, remains tight as new tech applications emerge.

Producers of passive electronics components including multi-layer ceramic capacitors (MLCC), dynamic random access memory (DRAM) chipmakers and flat panel suppliers are also seeing rising demand, which will strengthen their profitability this year.

Source: Focus Taiwan News Channel