Credit Suisse Group AG yesterday estimated that profit growth among Taiwanese firms would be less than 2 percent next year, compared with 9.5 percent anticipated for this year.
The Swiss bank’s forecast came after it slashed its TAIEX target from 10,000 points to 8,500 earlier this week as Taiwan faces headwinds from China’s economic slowdown and a spill-over effect from sluggish exports.
The TAIEX closed 3.57 percent higher at 8,286.92 points yesterday.
Throughout the year, global markets have seen the most precipitous corrections since the financial crisis of 2008, with stock prices approaching their lowest levels in 15 years.
Credit Suisse blamed global market fluctuations on currency-led demand shortfalls, weakness in emerging markets and a slowdown in product cycles, which have significantly affected the technology sector.
“In the next three to six months, our primary concern is that with growth in Taiwan’s non-technology sectors highly correlated to China’s GDP growth, will earnings cuts in the technology sector spread to non-technology sectors,” Credit Suisse’s Taiwan market strategist Chung Hsu (許忠維) said at a news conference for the 16th Credit Suisse Asian Technology Conference in Taipei.
As China’s GDP growth tends to foreshadow non-technology sector earnings for one to two quarters, the market might see negative growth in earnings for the first time since 2012, Hsu said.
The downward earnings revision for the nation’s technology sector began in April, followed by negative sentiment in June for overall earnings among Taiwanese firms, Credit Suisse said.
Even so, a strong current- account surplus, which has grown to 13.5 percent of GDP in the past two to three years, will make Taiwan a defensive market compared with its regional peers once a predicted US interest rate hike takes hold, Hsu said.
In addition, net profit of Taiwanese firms is expected to rise by 2 percent for every 1 percent the US dollar gains on the New Taiwan dollar, while profits would decline by 0.4 percent for each 1 percent of appreciation of the yuan, he added.
The bank expressed a more conservative view on the global semiconductor sector, due in part to weaker consumer technology product cycles and excess fabless inventories.
Randy Abrams, Credit Suisse’s head of equities research in Taiwan, said that semiconductor inventory levels are high due to inventory build-up last year, early customer aggression to build on optimistic projects in the first quarter and diminishing demand, with most consumer technology end-markets showing disappointing results.
“However, we are seeing some value emerging in the semiconductor space as stocks recently approached post financial crisis lows and are reflecting our views on macroeconomic, product cycle issues,” Abrams said at the news conference.
“Most upstream companies lowered their third-quarter outlooks, although we expect a cautious tone from the foundry group and equipment suppliers, and for soft trends to continue into the fourth quarter,” Abrams said.
“We are cautiously optimistic for 2016 as excess inventory clears and tech demand stays at least moderate, with support from new applications, including wearables, automotive electronics and devices under the broader Internet of Things umbrella,” he said.
The bank’s Asian Technology Conference began yesterday and runs through tomorrow.
Additional reporting by CNA
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