Merrill Lynch turns bullish on chips

Taiwanese chip stocks received a boost yesterday after US investment house Merrill Lynch turned bullish on the beleaguered semiconductor sector, saying the global market is near bottom.

In a report released on Wednesday, Merrill Lynch raised its ratings on 11 chipmakers worldwide -- including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (聯電).

Merrill said it expected semiconductor shares to begin slowly outperforming the overall market in the coming months.

"We believe semiconductor growth rates will hit a low point in August, remain low in September, and will then improve," Merrill's Andrew Griffin said. "In other words, we expect the industry to hit bottom very shortly."

In addition to TSMC and UMC, the investment house upgraded fellow foundry Chartered Semiconductor (特許半導體) of Singapore.

TSMC rose 2.9 percent yesterday to close at NT$70.50. UMC rose 2.8 percent to NT$40.20.

Those gains helped propel the TAIEX 3.1 percent higher to 4,490.19, as the two companies make up roughly 20 percent of the market's capitalization.

In addition, the rise in the nation's stock market gave a boost to the local currency. Volume in the foreign exchange market more than doubled to US$1.611 billion yesterday as foreign investors pumped in money to buy stocks. The NT dollar closed at NT$34.699, up from NT$ 34.730.

In the research note on Wednesday, Merrill researchers said a combination of more realistic earnings projections, a drop in spending on chip-making equipment and an expected recovery in chip sales made many chip stocks a good buy.

In particular, the analysts singled out makers of chips for mobile telephones and analog chipmakers, such as Texas Instruments. Contract foundries such as TSMC, UMC and Chartered were also high on Merrill's buy list.

"There are a lot of reports that the foundry industry deserves a buy now," said Michael Ding, chief investment officer at International Investment Trust Ltd. "Long-term of course it's going to be a good buy. The foreign investors in Taiwan think the foundry guys are at the bottom now."