Despite the recent lackluster performance of the local bourse, Morgan Stanley is bullish and has overweighted Taiwan's market because of the unexpected stimulus of positive earnings, bolstered by accelerating worldwide growth and a weakening national currency.
"We are overweighting Taiwan in our regional model portfolio," Morgan Stanley's Asia-Pacific strategist Malcolm Wood said in a research note that it released yesterday.
The main catalyst would be the positive earnings surprise driven by a speeding up of global growth momentum, as suggested by the company's OECD Momentum Growth Index, which stands at its highest value since last year, the analyst said. A currently weak NT dollar can help lift margins and earnings for Taiwanese companies, it said.
A sustained 5 percent slide in the nation's currency could raise earnings in the technology sector by over 10 percent, according to estimates by Morgan Stanley's resident Taiwan Strategist Dickson Ho (何資文).
Moreover, the local bourse's accommodative liquidity state, attractive valuation and a drawn-out depressed sentiment that is about to bottom out could all lead to a future upturn, Wood said.
Morgan Stanley suggested increasing exposure to export-focused stocks, including those of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), in its portfolio. They upgraded the world's largest contract chipmaker because of an expected rise in chip shipments for Microsoft Corp's xBox 360 game console and leading mobile handset producers.
The investment bank also removed Far EasTone Telecommunications Co (遠傳電信) for possible declining earnings over the next two years in the face of the challenges presented by mobile number portability, the recent launch of the 3G service and the expected entry of Vibo Telecom Inc (威寶電信) in to the market by the year's end.
The TAIEX closed down 28.21 points yesterday, or 0.50 percent, at 5632.97 on a daily turnover of NT$68.19 billion (US$ 2 billion). The bourse has seen an 8.3 percent slide in its benchmark index and net sales of around NT$33 billion by overseas investors this month, according to figures from the Taiwan Stock Exchange.
"The bourse will need some time to bottom out since both foreign and retail investors are holding back," Wang Chia-yuan (王佳源), a fund manager at Prudential Financial Securities Investment Trust Enterprises, said without giving a clear timeframe in a report yesterday.
With better-than-expected financial reports for the third quarter, healthy industry fundamentals and optimistic future guidance by high-tech companies, investors may consider bottom fishing for long-term holdings, Wang suggested.
As of yesterday, 369 out of 692 companies listed on the Taiwan Stock Exchange have filed their financial reports for the third quarter, according to the regulator.
Fubon Asset Management Co (富邦投信), however, did not expect the market to come out of its sluggishness any time soon amid domestic political disputes and the upcoming county magistrate elections.
The local exchange may not shine until after the elections end in early December, Fubon Asset Management's president Michael Ding (丁予嘉) said on Thursday.
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