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雷达卡
Business is bad, but the bottom is near
Maintain neutral on Taiwan based on
political catalyst
We recommend investors move out of
telecom into selected tech, and pick
selected blue chips and cross-strait plays
Be realistic, not overly pessimistic
It is easy to be negative about Taiwan now. Business
conditions are bad, and companies are issuing negative
guidance, triggering massive earnings revisions. The MSCI
Taiwan earnings estimate has been revised down 72% over
the past six months. Economists have joined the chorus,
downgrading GDP forecasts on sluggish domestic demand
and record unemployment rates. HSBC’s Economics team
currently expects the island economy to contract 0.7%, and
we expect more downgrades.
But recently there have been some more encouraging signs.
Strong companies like AUO and Wistron expect inventory to
drop and demand to see a turnaround in 2H09. The export
decline of 44% y-o-y was not as bad as we, and the market,
had expected. The government is also taking measures to
boost the economy. The latest attempt was the issuance of
TWD83bn worth of consumption vouchers. Although its
effectiveness to generate incremental demand is still
dubious, it will no doubt pull up President Ma’s approval
rating from the low of 23%, making is easier for him to push
forward his cross-strait agenda. All this tells us that market
visibility is clearer, analysts are pricing in the worst
scenarios and the government is making the effort to set the
stage to maximise benefits from warming cross-strait
relations. Therefore, we believe our neutral rating on Taiwan
is justified.
In this, our debut monthly Taiwan Insights, we look at
fundamentals, fund flows and any hot issues to capture the
earliest signs of turning points and latest trends on sector
allocation. This time, we recommend investors to rotate out
of telecom into selected tech. Within tech, we prefer
upstream to downstream. For our complete Taiwan Super
Ten list, please refer to the inside cover of this report.
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