HSBC yesterday downgraded its investment recommendation on Taiwanese equities to “neutral” from “overweight,” saying it thinks the market has peaked, with a limited upside potential in the near term.
The TAIEX, which has risen 10.55 percent since the beginning of the year, has been locked in a narrow range during recent sessions after it breached the 9,500-point mark last week. The benchmark index edged up 0.11 percent to close at 9,530.98 yesterday on turnover of NT$100.33 billion (US$3.36 billion).
“While we believe there is still moderate earnings upside potential if product cycles in [Apple Inc’s] iPhone 6 and 4G are as successful as expected, earnings volatility should increase in the near term in light of the threat of low yield at the beginning of the new product ramp,” HSBC said in its latest Asian equity report.
A spate of economic data released recently, including on manufacturing output, current-account surplus and the unemployment rate, have indicated the economy is moving into higher growth.
However, HSBC said weakness in external demand remains and public protests against a cross-strait service trade agreement may derail growth going forward.
Hong Kong-based HSBC economist John Zhu (朱日平) forecast that Taiwan’s GDP would expand 3 percent this year, which is slightly lower than the market consensus forecast of 3.2 percent, but higher than the 2.98 percent growth forecast the Directorate-General of Budget, Accounting and Statistics (DGBAS) forecast in May.
Elsewhere in Asia, the report said investors should buy more shares in China, Indonesia and Thailand, reduce holdings in South Korea and keep a neutral stance toward India.
However, CIMB Securities Ltd said in a separate equity strategy report for this region that it expects the TAIEX would likely stay at its current level, thanks to ample liquidity in the market, continued earnings expansion in the technology sector, positive government policies ahead of the local level elections in November and continuing recovery in the US and China.
Taiwanese technology stocks stand to benefit from upcoming new product launches by Apple Inc over the next three months, according to the report issued on Monday.
“However, we see overbooking in the tech supply chain as a potential downside risk after Apple launches its iPhone 6 in the late third quarter,” the CIMB report said. “We expect the financial sector to start to perform in the third quarter as investors may start to offload some tech holdings.”