ABN Amro rates nation `underweight'

ABN Amro Holding NV reduced its rating on Taiwan's equities to "underweight" from "neutral" on concern the nation's economy will be weakened by companies relocating production and services to China.

"We are bearish on Taiwan from a long-term structural perspective," Eddie Wong (黃耀), the brokerage's chief Asia strategist in Hong Kong, wrote in a note dated Thursday. "Taiwanese companies may need to move more and more of their services and management functions overseas."

Taiwanese manufacturers such as Hon Hai Precision Industry Co (鴻海精密) fill about 70 percent of overseas orders domestically, Wong said. That proportion will drop below 50 percent in three years as manufacturers move facilities to China to cut costs.

Investors should switch funds from Taiwan into Southeast Asian markets such as Thailand and Malaysia, which can better withstand slowing global economic growth because they rely more on domestic demand, Wong said. He raised his rating on the two markets to "overweight" from "neutral."

Taiwan's Taiex index has lost 2.7 percent since the end of June, while Malaysia's Kuala Lumpur Composite Index climbed 3.9 percent and the SET Index in Thailand added 1.6 percent.

ABN Amro maintains shares of Hon Hai, Chunghwa Telecom Co (中華電信) and Cathay Financial Holding Co (國泰世華金控) in its Taiwan model portfolio.