Taiwanese companies will see their earnings increase this year and next year, according to research released by Bank of America Merrill Lynch.
The US bank forecast that Taiwan’s overall corporate earnings will grow 18 percent this year and 10 percent next year, with a dividend yield ratio of 3.5 percent.
“The macro outlook has been unexciting in Taiwan, but we expect companies under our coverage to continue to see double-digit earnings growth,” said Katherine Hu (胡傳祥), a Taipei-based equity strategist at Merrill Lynch.
The discrepancy occurs because most exporters’ earnings and production are generated outside Taiwan and do not translate into domestic wage increases to help domestic growth in consumption, Hu said.
For individual sectors, Hu expects another strong year for Taiwan’s semiconductor industry, while Apple Inc’s supply chain moves away from South Korea — which means that Apple’s expansion of product lines will benefit its Taiwanese suppliers.
Moreover, a further opening up of local financial and wealth management products is likely to generate higher earnings for banks and brokers this year, with margins in the chemical industry also expected to rise moderately this year, she said.
Taiwan’s airlines are also forecast to benefit from the recovery of cargo shipments, led by the US, and local cement demand and supply might continue to improve, she added.
With the US economy turning for the better, Taiwan’s exports will gain momentum this year to help fuel local GDP growth, Switzerland-based UBS said on Saturday in its latest report on the Asia-Pacific economic outlook for this year.
Taiwan could post a 4 percent growth in GDP this year, UBS forecast. Compared with the GDP growth rates of the other Asian Tigers, Taiwan’s is predicted to be second only to Singapore’s 4.5 percent, on par with Hong Kong’s 4 percent and ahead of South Korea’s 3.4 percent, according to UBS.
Barclays PLC has also expressed optimism about Taiwan’s economic growth for this year, saying the export-oriented economy will benefit from an increase in investments in production equipment and material in the bellwether electronics sector.
In a recent research report, the British bank said Taiwan’s current account surplus for last month slowed from November last year as local manufacturers raised their investments in production equipment imports, with capital goods imports up 24.7 percent year-on-year, while the local manufacturing activity continued to expand in the month.
The bank said the increase in capital goods and expansion in production activity showed the local manufacturing sector holds a positive attitude toward global demand this year.
Last month, Taiwan’s imports grew 10.1 percent from a year earlier, compared with a 1.9 percent year-on-year decline in exports in the month, due to an increase in capital goods purchases.
According to the Chung-Hua Institution for Economic Research (中華經濟研究院), the country’s purchasing mangers’ index rose to 53.6 last month from November’s 52.
However, Gordon Sun (孫明德), director of the Macroeconomic Forecasting Center at the Taiwan Institute of Economic Research (台灣經濟研究院), said that the US economy could be overshadowed by political struggles in the first half of this year as the US Congress could renew a fight over the debt ceiling.
As a result, Taiwan’s exports to the US, which accounted for 10.7 percent of total outbound sales last year, are likely to remain slow until the second half of next year.
Sun said that many Taiwanese exporters are pushing to sharpen their competitive edge by working with strategic partnerships to penetrate the global market, adding their efforts are likely to pay off in the second half of this year or in the first half of next year.
He said that many Taiwanese manufacturers are turning to value-added products which emphasize services to attract buyers, while others have shifted attention from the US and Europe to target emerging markets. Sun said he expected such policy changes would start to benefit the local export sector in the second half of this year.