The benchmark TAIEX, which shed 3.6 percent in the first six months, is likely to consolidate in the second half on slowing corporate earnings and a lack of breakthrough in cross-strait trade ties, UBS Taiwan said yesterday.
The index, which closed up 0.92 percent at 8,652.59 yesterday, has lost 319.91 points from 8,972.5 at the end of last year, Taiwan Stock Exchange data showed.
The market value has shrunk 3.6 percent from NT$23.81 trillion (US$826.6 billion) to NT$22.95 trillion over the same period, which translated into an average loss of NT$100,000 per investor.
“We believe it is difficult for the market to move beyond the current range and break away from the recent pattern of consolidation,” William Dong (董成康), head of UBS Taiwan equities and research, said after the UBS Taiwan Conference.
Dong attributed the conservative market sentiment to a sub-seasonal third quarter during which high channel inventory and weak end-demand would likely constrain corporate earnings.
“We think the market needs greater clarity on the outlook for next year to get past the current mid-cycle dilemma,” Dong said. “We expect increased visibility by year-end.”
Arthur Hsieh (謝文宗), chief UBS electronics hardware analyst, said seasonality would be less important to follow going forward and that product position and differentiation will be the key driver for market demand.
Against this backdrop, the demand for personal computers would remain lukewarm in the consumer segment, but relatively healthy in the corporate segment for the next 12 to 18 months, Hsieh said.
“Notebook shipments could decline further while the sell-through of tablets could mostly turn out weaker than expected,” he said.
Handset demand, on the other hand, could be mixed across different regions, but smartphones should continue to grow at the expense of feature phones, the analyst said.
Companies with unique industry positions that outdo peers in their respective subsectors would fare better despite increasing uncertainties, he said.
Jonah Cheng (程正樺), UBS semiconductor analyst, said semiconductor companies might deliver sub-seasonal earnings performance in the third quarter after guiding for weaker momentum in the second quarter.
The poor outlook will be across all sub-sectors in the supply chain with inventory restocking following Japan’s March 11 earthquake and tsunami is complete and white-brand demand remains sluggish, Cheng said.
Overall, UBS Taiwan holds a neutral view on technology shares and maintains overweight ratings on non-tech stocks.
UBS financial analyst Pandora Lee (李懿璇) suggested shunning bank shares as their values have advanced much this year.
“There is greater growth potential for non-bank financial shares now that concerns over foreign exchange risks have subsided,” Lee said.
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