Analysts expect banking sector to fare well in 2008

Despite fears that a possible US recession could send the TAIEX tumbling, analysts said yesterday that the nation's banking sector is likely to outperform other TAIEX-listed shares.

"Affected by the US slowdown, the TAIEX will be relatively volatile in the first quarter," said Ken Chen (陳安), head of Taiwan equities at UBS Securities Pte Ltd (瑞銀證券). "But shares in banking, hotels, tourism and construction will do just fine the year as a whole."

Chen said tech shares, including strong performers such as notebook PCs and panel industries, may only see a rebound after May when the global stock markets stabilize in the second half of the year as the uncertainty surrounding the US' mortgage crisis and recession subsides.

Taiwan Ratings Corp (中華信評) also threw its support behind banking shares. All of the nation's 14 financial holding companies (FHCs) have seen "a return to moderate profit levels last year," it said in a report on Tuesday.

The averaged return on average assets (ROAA) for FHCs in Taiwan rose to 0.7 percent last year from 0.2 percent a year earlier "due mostly to banking subsidiaries' increasing fee incomes on wealth management business and a more active domestic capital market," the report by analysts Andy Chang (張書評) and Susan Chu (朱素徵) said.

Last year's level was similar to that seen between 2003 and 2005 -- before consumer credit delinquencies soared and when local financial markets last experienced a positive cycle, the report said.

China Development Financial Holding Co (中華開發金控) had the highest ROAA of 2.8 percent last year, but that also represented an almost 40 percent decline from one year earlier.

"Notable underachievers included Shin Kong FHC and China Development FHC. Both.... suffered one-off investment losses due to their equity holdings and debentures of Cosmos Bank (萬泰 銀行), which completed capital restructuring in December 2007," the report said.

"Only those with a strong market position, diversified revenue stream and strengthened enterprise risk management will be in an opportune position to improve their profitability," the report said.