The delay in the US Federal Reserve tapering its quantitative easing and the gradual recovery in the global economy has led Taiwanese companies to report an average 33 percent annual increase in earnings this year, and the TAIEX has gained 8.69 percent since the beginning of the year.
However, Taiwanese corporate earnings and stocks look likely to rise further next year, Credit Suisse AG analysts led by Chung Hsu (許忠維) said last week.
“We believe Taiwan is well positioned to benefit from a healthy global macroeconomic backdrop, with earnings likely growing another 14 percent in 2014,” Credit Suisse analysts said in a report issued on Tuesday.
The report, titled Taiwan Outlook: Global health propels 2014, said corporate earnings growth next year should be supported by better export outlook, continued profit normalization among non-tech companies and a much smaller drag from the consumer tech sector after a two-year slump.
Moreover, with the approach of next year’s seven-in-one municipal elections, President Ma Ying-jeou’s (馬英九) government is expected to “turn more supportive after much focus on reforms in the past two years” in a bid to revive its low approval rating, Credit Suisse said.
The seven-in-one elections refer to polls for all directly elected local government positions: special municipality mayors and councilors; county commissioners; city mayors; county and city councilors; township mayors and councilors; and borough and village wardens.
Among the Chinese Nationalist Party (KMT) government’s possible stimulus policies are promoting private sector investments in public infrastructure; facilitating some securitization schemes to finance large-scale infrastructure projects; setting up free-trade zones to induce greater private investments; and signing more free-trade agreements with Taiwan’s trading partners, the report said.
Despite limited prospects of cross-strait progress as both sides wait for the service trade agreement to be approved by the legislature, which Credit Suisse said could be delayed until the next legislative session in May-June, Taiwanese stocks still offer value.
Switzerland’s second-largest bank has set its 12-month TAIEX target at 9,000 points, saying it sees a 7.1 percent potential upside from current levels. The benchmark index closed at 8367.72 on Friday.
The Taiwanese market generated a 10.7 percent return on equity this year and the figure is expected to rise toward its long-term average of 11.7 percent next year, which could help the local bourse to trade at 1.7 times next year’s forecast book value and 15.6 times the estimated earnings, the report said.
William Dong (董成康), equities and research head of UBS Securities Taipei branch, set his 12-month TAIEX target at 8,850, based on 1.85 times next year’s book value, according to a separate report released last week.
“We believe financials in Taiwan will still be a key focus in the first quarter of 2014 in anticipation of quantitative easing tapering and rising yields,” Dong said. “We believe the focus will then shift to tech with the start of the seasonal build in the second quarter and potential launch of next generation iPhones in the second half of 2014.”
The anticipated beneficiaries of Credit Suisse’s positive market outlook include upstream semiconductor companies, such as Taiwan Semiconductor Manufacturing Co (台積電), Advanced Semiconductor Engineering Inc (日月光) and MediaTek Inc (聯發科), amid improving economic growth in the developed economies.
Certain downstream tech companies like Hon Hai Precision Industry Co (鴻海), whose sales fell 3.18 percent year-on-year in the first 10 months, and Catcher Technology Co (可成), which reported a 18.22 percent increase in overall sales during the first 10 months, are also favored by Credit Suisse because of potential positive sales drivers next year.
Meanwhile, CTBC Financial Holding Co (中信金控), contact lens manufacturer St Shine Optical Co Ltd (精華光學) and EVA Airways Corp (長榮航空) are being picked because they are still in the early part of their up-cycle or have a growth profile in the long term.