Analysts back high-tech sector to bolster TAIEX

With politics no longer a downside concern for the time being, the strengthening high-tech sector is expected to lead the soaring TAIEX to 10,000 points by the end of this year, UBS Securities Ltd said yesterday.

"We have been bullish about the market since the beginning of this year, banking on the low prices, healthy earnings growth, attractive dividend policy and more mergers and acquisition activities," Ken Chen (陳安), head of UBS Securities' Taipei branch, told a media briefing yesterday.

The TAIEX closed down 73.44 points or 0.82 percent at 8,865.75 yesterday, retreating from a seven-year high of 8,939.19 on Monday as a result of profit-taking.

Foreign investors bought a net NT$3.875 billion (US$118.2 million) worth of stocks yesterday, bringing their net purchases to NT$174.545 billion since the beginning of the year, stock exchange data showed.

UBS Securities wrapped up a two-day investment forum yesterday that attracted more than 200 institutional investors, 70 percent of which came from overseas, to meet with more than 90 local big-cap companies.

Two months ago, UBS Securities gave an overweight rating on the Taiwan stock market, which has been sizzling in recent weeks.

The Swiss brokerage invited Chinese Nationalist Party (KMT) presidential candidate Ma Ying-jeou (馬英九) and Lee Ying-yuan (李應元), head of Democratic Progressive Party candidate Frank Hsieh's (謝長廷) campaign, to address the forum on their economic and cross-strait policies.

Both Ma and Lee spoke in favor of economic and cross-strait transparency, though not in explicit terms, as well as market liberalization, Chen said.

Retail buying will become more powerful as investors discount positive political changes pertaining to current China policy, the analyst said.

Emphasizing the value of the technology industry, UBS Securities projected that overall high-tech earnings would rise 39 percent in the third quarter and 19 percent in the fourth.

William Tung (董成康), the company's analyst who tracks local high-tech equities, attributed the bullishness to the cyclical earnings recovery in the thin-film-transistor liquid-crystal-display (TFT LCD) sector, Vista's delayed effect in boosting personal computer sales, the positive impact expected from the rollout of touch-screen handset products like Apple Inc's iPhone and strong network infrastructure spending in emerging markets.

UBS Securities was not as optimistic about the financial sector, lifting its rating by one notch to "neutral" from "underweight."

"We did not see strong support for a further re-rating move in the industry's fundamentals," UBS Securities financial analyst Pandora Lee (李懿璇) said.

The financial sector is still suffering from continued margin contraction after the consumer credit abuse storm and intensifying competition for service fees as banks move toward wealth management in droves without significant differentiation, she said.

The local financial industry lacks demand and has too many players, and significant progress in consolidation as well as cross-strait market liberalization would be required to trigger a further rerating, Lee said.

Shin Kong Investment Trust Co (新光投信) agreed that the TAIEX was likely to reach 10,000 by the year's end.

"But it would require opening up to China further, for instance by implementing direct links, to boost the benchmark index back above 12,000 points," Shin Kong Investment vice president Kevin Lee (李文宗) said.