Mon, Jan 03, 2005 - Page 10 News List

Securities house warns investors to be cautious

TAKE CARE Yuanta Core Pacific Securities said yesterday that tech shares should rather be avoided in favor of shares in banks, construction and property

By Amber Chung  /  STAFF REPORTER

Despite the nation's benchmark stock index ending the year with a seven-month-high on Friday, in-vestors will need to stay alert this year, as the downgrade cycle is expected to linger throughout the first half of this year, according to a local securities house.

"The TAIEX has not yet reflected downgrades to date, thanks to liquidity, MSCI [Morgan Stanley Capital International], election stimulus and year end window dressing," Yuanta Core Pacific Sec-urities (元大京華證券), the nation's largest securities house, said in a report released last week.

"Our index target for the next six months is 5,000," said Yuanta Core Pacific, which suggested in the report investors to be careful this year.

The TAIEX ascended by 38.83 points, or 0.64 percent, to 6,139.69 points on Dec. 31, hitting a seven-month high from May last year.

The company's bearish prediction came from their expectations for US consumer spending to weaken with higher household debt, rising interest rates, high oil prices, a lack of tax breaks and the declining US greenback.

The prices of many commodities, in particular steel and petrochemicals, would not dip until the second half after the cycle peaks in mid-year, the report said.

"All this means the current downgrade cycle is only about half over and is likely to continue throughout the first half, especially in technology, exporters and US dollar revenue stocks," the report said.

Yuanta Core recommended a "very underweight position" in the tech sector because of its exposure to US demands and the US dollar. The securities firm also holds a slightly underweight position in materials shares.

Domestic demand players and asset reflation players, such as property, banks, construction and telecom stocks, are favorable investment targets, it said.

Yuanta Core Pacific's top ten stock picks for this year include Taiwan Cement Corp (台泥), Far Eastern Textile Ltd (遠東紡織), Premier Image Technology Corp (普立爾), Chunghwa Telecom Co (中華電信), Mega Financial Holding Co (兆豐金控) and Shin Kong Financial Holding Co (新光金控).

Its top 10 least favorable shares include AU Optronics Corp (友達光電), Chi Mei Optoelectronics Corp (奇美電子), Powerchip Semiconductor Corp (力晶半導體), Lite-On IT Corp (建興電子), Compal Electronics Inc (仁寶電腦) and Compal Communication Inc (華寶通訊).

Compal, the world's second-largest notebook PC contract manufacturer, is also included in the three stocks to avoid along with Evergreen Marine Corp (長榮海運) and Taiwan Styrene Monomer Corp (台灣苯乙烯), as suggested by JP Morgan Chase Bank.

The US investment bank suggested investors to avoid technology stocks that are in a market with poor industry dynamics, such as excess competition, lack of pricing power and overly short product cycles.

"We are staying with long financials and broadening exposure to other beneficiaries of reflation, such as retailers that are sensitive to a rise in discretionary spending," JP Morgan said.

JP Morgan's top picks include Cathay Financial Holding Co (國泰金控), Far Eastern Department Stores Ltd (遠東百貨) and Taiwan Semiconductor Manufacturing Co (台積電), Bank of Kaohsiung (高雄銀行) and High Tech Computer Corp (宏達電).

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