Shift to top-tier stocks, firm says

Investors should shift into the shares of large companies with stable returns in the second quarter as Taiwan's weakening economic data may put the squeeze on small-capital shares, a local investment consulting agency said yesterday.

"The weakening economic outlook will not divert the local stock market's liquidity-driven up-trend, but Taiwan's slowing exports could reduce the recent spike in small-cap stocks. The rise in the small-cap stocks is on the wane," said Cheng Yu-cheng (程裕城), a strategist with Polaris Research Institute (寶華經濟研究院).

The research house, a unit of Polaris Financial Group (寶來金融集團), expects the government to cut its economic growth forecast for this year for the second consecutive time during a quarterly meeting in May.

Cheng expects the government to cut its forecast for economic growth to below 4 percent.

The government currently predicts Taiwan's economy will expand by 4.21 percent annually this year.

But the TAIEX is expected to shoot up to around 6,500 points in the second quarter as foreign investors are expected to significantly increase purchases of local shares as Morgan Stanley Capital International Co hikes the Taiwan stock market's weighting in May as planned, Cheng said.

He suggested investors increase buying after the benchmark TAIEX falls below 5,900 points. The TAIEX slid 1.45 percent to 5,961 points yesterday.

"But investors should take a more conservative investment strategy to reduce risk. Adding more heavyweight [stocks] to their portfolios is one of the best choices," Cheng said.

Taiwan's top 10 heavyweight companies should account for 70 percent of investors' investment portfolios due to the respective yield of 5.4 percent on average, he suggested.

Taiwan Semiconductor Manufacturing Co (台積電), the world's top contract chipmaker, Chunghwa Telecom Co (中華電信), Taiwan's biggest company, and Formosa Petrochemical Corp (台塑石化), the world's No.2 PVC supplier, are high on the list.

In addition to these firms, investors are advised to buy electronics component makers with growth potential when their stock prices come down.

Green Point Enterprises Co (台灣綠點), which makes molds, casings and other plastic parts for mobile phones, and Merry Electronics Co (美律), a microphone maker, as well as camera lens maker Asia Optical Co (亞光), are some good choices, according to Polaris Financial Group.