For investors who own Taiwan stocks, following Credit Suisse First Boston Inc's advice may cause confusion because of diverging views on how the US, which absorbs more than a fifth of the nation's exports, is faring.
Jeffrey Hanson, CSFB's Taiwan head of research, predicts the TAIEX will rise another 25 percent as the economy rides the coat-tails of a US recovery and climbs out of recession.
Stewart Paterson, CSFB's Asia strategist, reckons the index's 35 percent gain since Dec. 1 went too far, too fast.
"There are times when you have to agree to disagree," Hanson said.
The fact that analysts at the same bank are publishing opposing views on Taiwan underscores the extent to which there is a lack of consensus on the timing of a US recovery. Even Alan Greenspan has given conflicting signals.
The Federal Reserve Chairman on Jan. 11 said the US economy faces "significant risks" in the near term, causing US stocks and the TAIEX to drop.
According to the Washington Post newspaper, Greenspan sounded more pessimistic in that speech than intended and some Fed officials suggested the market had "over-interpreted" his comments. On Jan. 24, Greenspan appeared to change his tone when he said "activity is beginning to firm," lifting stocks in the US and Asia.
Hanson expects a growing US economy to drive Taiwan's gross domestic product to rise as much as 5 percent by the fourth quarter.
CSFB's US economists, headed by Neal Soss, agree. Soss, who held positions within the Fed for several years before joining CSFB in 1984, expects the US economy to grow 1.3 percent in the first quarter this year.
He forecasts GDP will rise 2 percent in the second quarter, 3.2 percent in the third quarter and 3.4 percent in the fourth quarter, thanks to government spending and companies' upgrading their technology by spending more on software and hardware products.
* Jeffrey Hanson, CSFB's Taiwan head of research, predicts the TAIEX will rise another 25 percent.
* Stewart Paterson, CSFB's Asia strategist, reckons the index's 35-percent gain since Dec. 1 went too far, too fast.
* The fact that analysts at the same bank are publishing opposing views on Taiwan underscores the extent to which there is a lack of consensus on the timing of a US recovery.
Source: Bloomberg
Paterson isn't as confident. In a Jan. 18 note to clients, he said there is a "risk" that US economic growth this year will fall short of forecasts and as such, Taiwan stocks are vulnerable to a sell-off.
He recommends that investors hold fewer Taiwan shares than the MSCI All Countries Asia Free ex-Japan Index's 18.88 percent weighting, and buy stocks in Korea, India, Thailand, Indonesia or the Philippines instead.
Hanson says investors should buy more Taiwan stocks.
"We view 2002 as a recovery year," wrote Hanson in a separate note, also dated Jan. 18, to clients. As for why his recommendation contradicts Paterson's, "our regional strategy team is more cautious than our on-the-ground Taiwan team."
Taiwan's economy shrank 2.3 percent in 2001, while the US economy contracted at a 1.3 percent annual rate in the third quarter. Almost two-thirds of the TAIEX is made up of electronics companies such as Quanta Computer Inc (廣達電腦), which makes computers for Dell Computer Corp and Apple Computer Inc.
"Obviously, they should try and coordinate their calls on a market," said Bill Roden, who helps manage ?155 million (US$222 million) in emerging markets at AXA Investment Managers UK Ltd. Still, "it's quite common that a regional strategist and a country strategist disagree."
In this case, Roden expects the US economy to pick up, increasing demand for Taiwan's semiconductors, laptop computers and other goods. He said Taiwan stocks are cheap on a price to book basis as he expects profits to increase this year.
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