Thu, Mar 15, 2001 page17

• Market refuses to follow US lower

  EQUITIES Analysts from Taipei and Hong Kong say that local tech shares still have good value and the domestic economy could rebound ahead of the US

  • By Tsering Namgyal / STAFF REPORTER
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  In the past, when the US markets sneezes, Taiwan catches cold as the Taiwan Stock Exchange, like most Asian markets, follow the US technology-laden NASDAQ.

  But this week when the NASDAQ crashed, the Taiwanese bourse defied gravity and went up instead. The benchmark index closed up by 47.81, or 0.9 percent, to 5,658.21 points yesterday -- thanks partly to the overnight recovery on the Wall Street.

  One reason, analysts believe, is that the meltdown in Taiwan's stock market beginning last year has pushed the Taiwanese tech price close to historical lows.

  "They are not right there at the bottom, but they are close [to historical lows]," said Camille Vergara, an analyst who covers the Taiwanese technology shares for Fortis Investment Management in Hong Kong.

  For instance, she believes, that the Taiwan Semiconductor Manu-facturing Co (TSMC, 台積電) is now trading at a price-to-book value of 3.2 compared to its six-year low of 2.3 times. And the United Microelectronics Corp (UMC, 聯電) is hovering at 2.2 times compared to its 1.7 times over the past six years.

  Thanks to the relatively low future earnings visibility, she believes that PBR -- which is a ratio of the company's share price compared to its net worth -- may be a more reliable measure of the stocks compared to the more common price-to-earnings ratios.

  Sure, the technology sector will report disappointing earnings this year, but savvy investors buy stocks when "the market is at the bottom," said one analyst. Local technology shares are also much cheaper than their counterparts on the NASDAQ, analysts reckon.

  Jerry Huang, an analyst with Deutsche Securities in Taipei, has calculated that Taiwan's technology stocks as a group are now trading at 22 times 2001 forward PE multiple versus 35 times for the NASDAQ.

  "This means there is less downside for the local shares compared to NASDAQ," he said.

  Economics are favorable too. With the monetary easing expected to have an effect on consumer demand within three to nine months, investors should expect some good news in the third quarter of this year.

  "So it will not hurt to accumulate stocks at this level," Vergara said.

  Valuations aside, improving domestic confidence may also be partly responsible for the recent recovery in the local shares. Some leading economists already believe that domestic economic growth -- which decelerated sharply beginning last year -- could rebound in the second half.

  Since Taiwan's economy slowed before the US, analysts reason that it may also recover earlier.

  "The reason why we believe there may be a sharp rebound in Taiwan in the second half is because there is the confidence factor -- if a rebound occurs, it could be quite sharp as well," Joan Zheng (鄭杏娟), an economist who covers Taiwan for JP Morgan Chase in Hong Kong, said last week.

  Vergara prefers Hon Hai Precision Industries (鴻海精密), Delta Electronic (台達電), Powerchip Semiconductor Corp (力晶半導體), Nanya Technology Corp (南亞科技), and of course, the two flagship foundry giants -- UMC and TSMC.

  "But it is still too early to try to go into downstream component sectors, which will still suffer from the declining growth in personal computer demand," said a local analyst from a fund management house.
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