For investors in Taiwan’s US$841 billion stock market, Apple Inc chief executive officer Tim Cook matters more than president-elect Tsai Ing-wen (蔡英文).
While the ascension of Tsai to the presidency has sparked concern relations with China will deteriorate, JPMorgan Asset Management and BlackRock Inc say the bigger risk is the slowdown in the global smartphone business.
Apple reported its first quarterly sales decline in 13 years, with Cook acknowledging on April 26 that the market had “stopped growing.”
Photo: CNA
That is bad news for Taiwan’s largest companies, which help build the devices.
Investor confidence in Taiwan’s stock market reflects “export demand, and by far the dominant export demand factor is electronics and Apple in particular,” said Howard Wang (王浩), Hong Kong-based head of greater China for JPMorgan Asset Management.
“Any negative from Tsai can easily be washed out if the iPhone 7 does well,” he said.
Falling profits at Taiwan’s technology companies, including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Hon Hai Precision Industry Co (鴻海精密), are now weighing on the TAIEX, with aggregate earnings dropping 24 percent in the first quarter.
Pegatron Corp (和碩), which assembles iPhones, missed profit expectations for the first quarter and said last month’s sales dived 16 percent. TSMC, one of the largest manufacturers of the application processors that are a mobile device’s brains, last month cut its smartphone demand forecast for this year. At the same time, Acer Inc (宏碁) and Compal Electronics Inc (仁寶) are still struggling to rebound from the downturn in PCs, another key export for Taiwan.
The technology industry’s failure to develop new must-have products is darkening the outlook for Taiwanese companies, said Andrew Swan, head of Asian equities at BlackRock, who is underweight on Taiwanese shares.
“More and more tech spend has gone into software rather than hardware and Taiwan companies tend to be more hardware-driven,” Swan said in Hong Kong this week. “Now that smartphones are fairly saturated, technological breakthroughs haven’t been keeping up to pace. That process has destroyed profitability for the sector.”
Still, investors will be closely watching China’s reaction to Tsai’s inauguration speech for any signs of a change in approach toward the nation.
For Stevie Chou (周奇賢), Taipei-based head of equities at Manulife Asset Management Taiwan Co (宏利投信), Tsai is unlikely to want to upset China. He favors companies linked to biotechnology and national defense, which are among the sectors her campaign highlighted.
“Taiwan having a government that’s uninterested in unification with China is nothing new,” Chou said. “Tsai won’t provoke China. She will focus on economic and social issues.”
The TAIEX yesterday closed 0.78 percent lower at 8,095.98 points.
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