Standard Chartered Bank yesterday advised investors to cut back on Taiwanese equities while the global economy struggles on in the coming months and probably years, because technology-focused shares are more vulnerable to external volatility.
“We see a muddle-through scenario as likely to continue in the coming months and possibly years … data around the word has been weaker than expected,” Steve Brice, chief investment strategist at Standard Chartered, told a media briefing in Taipei.
Standard Chartered’s view tracks the TAIEX’s weak performance over the past months, after Singapore on Tuesday overtook the local bourse in terms of market value and the distance it lags behind its Hong Kong and South Korean peers widened.
Brice said investors should overweight global equities, as many are undervalued and pay higher dividend yields than bonds in mature markets.
The UK-based banking group is neutral on Asia — slashing holdings in Taiwan and Malaysia, while increasing stakes in China and South Korea, Brice said.
The strategy had nothing to do with Taiwan’s plans to tax capital gains on securities investments, but came as a result of valuation checks to meet defensive needs, he said.
The local bourse is driven mainly by technology-focused firms, whose earnings are susceptible to external challenges, Brice said.
Heavyweight companies such as smartphone vendor HTC Corp (宏達電) and PC supplier Acer Inc (宏碁) have lowered their earnings guidance amid worsening debt problems throughout the eurozone.
“More is required to stabilize the situation although the recent summit has been positive,” Brice said. “The European Central Bank [ECB] appears reluctant to act aggressively as yet.”
Over time, the ECB would have to relent and take action to ring-fence the majority of sovereign debt in the eurozone, the investment strategist said.
Likewise, Chinese authorities currently assign more importance to labor market stability than to economic growth, Brice said.
They might make adjustments if developments call for more aggressive intervention to support the economy, he added.
Standard Chartered expects Europe and China to further loosen their monetary policies, while the US would stay put.