Credit Suisse First Boston (CSFB) says investors this year should buy Taiwan construction-related stocks such as Taiwan Cement Corp (台灣水泥) and Continental Engineering Corp (大陸工程) to take advantage of increased government infrastructure spending and as a "defense" against slowing exports.
A strengthening New Taiwan dollar and China's attempts to curb economic growth may hurt Tai-wanese exporters, Sherry Lin (林淑娥), head of Taiwan research at CSFB, wrote in a report yesterday.
The government forecasts export growth will slow to 7.4 percent this year after jumping 20.7 percent last year.
Lin recommends investors be overweight on "non-tech" stocks and companies that will benefit from increased demand for domestic construction.
Last June the government passed a NT$500 billion (US$15.7 billion) budget to be spent on 10 public works projects to spur investment and growth.
The TAIEX, adjusted for currency changes based on the US dollar, rose 11.8 percent last year, the 10th worst performer among 60 indexes tracked by Bloomberg. Without adjusting for the NT dol-lar's appreciation against its US counterpart, the index rose 4.2 per-cent last year. The index has fallen 3.4 percent this year.
"2004 was a huge disappointment, particularly when it was such a good year for the economy," Lin said. "The new calendar year does not bring any relief to lackluster markets."
"A combination of slowing US and China economies, peaking trade and domestic consumption, rising interest rates and a falling US dollar seems like a perfect storm ready to swamp the bourse here," she said.
Lin said Morgan Stanley Capital International Inc's decision to have Taiwanese companies given full market representation in its in-dexes starting on May 31 could limit declines, although it was "certainly not a rally-rousing catalyst."
CSFB has a "outperform" rating on Continental Engineering, and CTCI Corp (中鼎工程). Taiwan Cement was its top pick among contractors, Jim Hung, an analyst at CSFB, wrote in the report.
CSFB also said investors should not completely abandon technol-ogy stocks.