Fading liquidity in Taiwan stock rally raises worry of U-turn

[TAIPEI] Taiwanese stocks may have risen to 15-year highs this week, but it is a market that is bleeding liquidity despite boasting some of the world's biggest tech companies, exposing investors to any sharp swing in prices and sentiment.

Turnover has not kept pace with the market's capitalisation this year as many local retail investors have stayed away. Turnover as a percentage of market capitalisation shrank to 17.3 per cent in January-to-March, according to Thomson Reuters calculations based on stock exchange data. That's the lowest since 2005.

Some Taiwanese retail investors have ploughed their money into other markets in China and Japan. They are skipping the Taiwanese market for now, concerned about future political ties with the mainland and particularly a much-debated capital gains tax that have sapped local investor sentiment since 2013.

Foreign investors, who account for about a third of total trades, are exempt from the tax. "Taiwan's retail investors have lost their passion. Only foreign investors are buying amid solid corporate earnings potential," said John Chiu, fund manager of Taipei-based Fuh Hwa Investment Trust, which oversees TW$180 billion (S$7.8 billion) in client assets.

Foreign investors pushed Taiwan's market past the 10,000-point milestone this week.

The main index, which includes Taiwan Semiconductor Manufacturing Co and Hon Hai Precision Industry Co, is widely expected to rise further. Fuh Hwa Investment Trust estimates corporate earnings would grow 10 per cent to a record TW$2 trillion in 2015. But Chiu said he does not expect a similar manic rush for shares seen in mainland stock markets.

REUTERS