The TAIEX might see a further downturn following yesterday’s elections as dampened earnings growth prospects and lingering international factors, including concerns over the Chinese economy and the yuan, continue to shake investors’ confidence, equity strategists said.
In the first two weeks of this year, shares have fallen by nearly 7 percent on concerns over the domestic economy and external uncertainties. On Friday, the TAIEX closed 0.25 percent higher at 7,762.01 points.
“We hold a conservative view on corporate earnings by Taiwanese and Asian companies, as there are no obvious upsides other than falling crude oil prices,” Hong Kong-based JPMorgan Asset Management chief market strategist Tai Hui (許長泰) said.
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Regarding Taiwanese firms’ low price-to-earnings ratio, the metric reflects their lack of growth momentum, Hui said.
He said that he has observed a trend in recent years where investors are more attracted by stocks with high price-to-earnings ratios, with many preferring to bet on eventual growth.
The end of the nation’s presidential election — which saw Democratic Progressive Party president-elect Tsai Ing-wen (蔡英文) beat Chinese Nationalist Party (KMT) candidate Eric Chu (朱立倫) by a wide margin — only spells the beginning of new variables affecting the relationship between Taiwan and China, once the new government’s policies take shape, Marbo Securities Consultant Co (萬寶證券投顧) analyst Winson Wang (王榮旭) said.
“Local financial companies might be more sensitive to changes in cross-strait relations, as their expansions in China are susceptible to the whims of Beijing,” Wang said, adding that rising exposure to the world’s second-largest economy comes with its own risks.
In the final trading session before the polls, the financial index on the main bourse fell 1.99 percent to 866.14 points, representing a 12.02 percent decline since the first trading session of this year on Jan. 4 and outpacing the 6.66 percent decline seen on the TAIEX over the same period.
Daiwa Capital Markets Inc has downgraded its view on Taiwan’s financial sector from “neutral” to “negative,” citing concerns about the weakening yen, rising default risks on high-yield bonds and the nation’s sluggish GDP growth outlook.
“Banks are more fragile than insurers under less favorable liquidity conditions this year, narrowing net interest margins and lower loan recoveries; downside risks do not appear fully priced in yet amid ongoing share price corrections,” Daiwa Capital Markets analyst Christie Chien (簡民惠) said in a note on Monday last week.
However, banks and insurers are poised to face continued strains on their earnings prospects, painting a gloomy picture on the sector as fixed-income yields are hard-pressed by international variables leading to wide swings in investments and asset valuations, let alone the possibility of more interest rate cuts by Taiwan’s central bank at home, Wang said.
Wang was also downbeat on the nation’s key technology sector due to tepid global demand, which he said would particularly affect companies in Apple Inc’s supply chain.
However, given the rebound in average unit prices of electricity, Wang said the prospects are good for the nation’s solar industry, adding that the cost of generating energy with renewable technology is nearing that of oil or natural gas power plants.
“The biotechnology sector is likely to be among the few bright spots in the market, as consumers tend to prioritize vital disease treatments and healthcare spending over upgrading electronic products, leading to more stable demand,” Wang said.
Other positive developments for the sector include a rapidly expanding domestic market and an aging global population, he said.
In addition, the development of the biotechnology industry is among Tsai’s campaign platforms, with anticipated government support for developing pharmaceuticals, medical instruments and related materials, he said.
Biotechnology shares have gained nearly 2 percent in the past three months and outperformed the 28 other subgroups on the main bourse.
As biotechnology companies’ sales last month and over the last quarter as a whole have met or exceeded market estimates, Yuanta Securities Investment Consulting Co (元大投顧) said it expects a short rally after the elections, but advised investors to accumulate shares during price pullbacks.
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