The local stock market will enter phases of corrections as the anticipated economic recovery will be slow and gradual, analysts at UBS Securities Pte Ltd said yesterday after wrapping up its two-day Taiwan Conference, with 260 company executives and investors participating.
“The end demand hasn’t picked up yet as the economic recovery will be a slow, L-shaped one, which represents weaker-than-expected fundaments to bolster the stocks’ further spike,” William Dong (董成康), managing director and head of the firm’s Taiwan equities, told a media briefing yesterday.
Dong said he was conservative about the local economy’s short-term prospects but positive on long-term developments once “opportunity knocks” following closer economic ties between Taiwan and China.
Taiwan’s inking of an economic cooperation framework agreement (ECFA) with China will be crucial to providing a boost to the domestic market in 12 to 18 months, he said.
UBS analyst Jonah Cheng (程正樺) said he had a “neutral” view — a shift from his previous “overweight” rating — on the semiconductor sector, saying he expected greater inventory risks in the next quarter and seasonal demand may not be as strong this year.
“The sector’s upstream manufacturers may be experiencing a V-shaped recovery, but its downstream manufacturers may face an L-shaped recovery,” he said at the briefing.
Arthur Hsieh (謝宗文), the firm’s electronics hardware analyst, forecast limited upside for technology shares in the next few months as inventory restocking orders would gradually taper off and end demand would remain sluggish.
However, the niche smartphone market could see growth in the second half of this year, depending on how fast telecom operators are able to promote 3G sales, Hsieh said.
He forecast sequential growth of about 20 percent in the third quarter, but said that visibility for the fourth quarter remained unclear.
As for financial shares, the sector’s recent rally was mainly driven by investor sentiment, as fundamentals remained weak, UBS financial sector analyst Pandora Lee (李懿璇) said.
Lee said that potential Chinese investment would only benefit “one or two relatively stronger Taiwanese banks with connections to the ruling party as a political showing.”
Among the nation’s 14 financial service providers, Lee estimated a capital shortage of between NT$4.5 billion (US$136.8 million) and NT$11.1 billion and a potential share dilution from 3 percent to 14 percent, she said.
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