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Taiwan’s market rating climbs to No. 1

Taiwan jumped from No. 2 to become the most favored market among Asian emerging countries, followed by Russia and Malaysia, in Morgan Stanley & Co’s monthly quantitative country model for last month, its chief strategist said yesterday.

“Taiwan is our top-pick market. In fact, it’s been our third market in Asia all year,” Jonathan Garner, managing director and head of Morgan Stanley’s global emerging markets equity strategy, told the Taipei Times by telephone yesterday. “It is cheap and oversold.”

The model showed the Taiwanese market was under-owned with a great valuation — the highest in its dividend yield component among the 20 countries in the Morgan Stanley Capital International (MSCI) emerging market index. The index is currently trading at 25 percent below its 15-year average and oversold 17 percent to its 200-day moving average, Garner said from Hong Kong.

“It [Asia] is the most oversold market since post-September 11 in 2001,” he said.

With the MSCI expected to upgrade Israel and South Korea to the “developed market” status next year, China, Brazil and Taiwan would gain about 2 percentage points each in the benchmark’s weight, which Garner said would pose a challenge for investors who are running a 3 percent underweight provision in Taiwan.

The report, released on Aug. 14, said Morgan Stanley rated both Taiwan and Russia “overweight” and upgraded Egypt and Hungary from the previous “underweight” to “equal-weight.” It reduced South Korea and India to “equal-weight” and “underweight” respectively.

Locally, Morgan Stanley favored technology and financial shares. It said that for the first time technology shares were trading a larger premium on dividend yield than that of emerging market equities. Low price-to-book value discounts also favored technology shares for the first time, Garner said.

The chief strategist said his investment bank had been advising its investors to dump energy shares and go for tech shares.

“After many years of de-rating this sector, of de-rating Taiwan’s market … there may be a tech rotation globally away from the energy sector toward technologies and Taiwan should be a beneficiary of that,” Garner said.
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