Citigroup has decided to adjust downward the weighting of Taiwanese shares in its regional model portfolio, making Hong Kong its top overweight market while pushing Taiwan to third from No. 1.
Following the adjustments, South Korean shares are now the second-ranked “overweight” group in Citigroup’s Asia ex-Japan model portfolio, while China remains its largest “underweight” market, it said in a client note issued on Wednesday.
Under the latest changes, Citigroup Global Markets Inc reducedits Taiwan weighting by 3 percentage points by removing Taishin Financial Holding Co (台新金控) and Chinatrust Financial Holding Co (中信金控) from its Asia ex-Japan model portfolio, the note said.
The removal of the two Taiwanese financial shares from the US brokerage’s list of recommended shares reflected its concerns over “high valuations, regulatory uncertainty and a tough operating environment” in Taiwan, Hong Kong-based strategists Markus Rosgen and Elaine Chu said in the note.
Instead, Citigroup added China Construction Bank Corp (中國建設銀行) into the regional model portfolio, suggesting investors can now buy shares of China’s second-biggest lender.
“With continued strong loan growth and falling credit costs, the banking sector in China still has room for earnings to be revised higher,” the two strategists said.
The brokerage maintained its overweight rating on banks across Asia ex-Japan, they said.
In the note, Citigroup said it was “lightening up” on Taiwanese shares because the equity market was no longer as cheap as it was, following a rally in recent months.
The benchmark TAIEX has risen 33.8 percent so far this year, local stock exchange data showed.
The US brokerage also attributed its move to sharply revised earnings forecasts for local companies, as well as sizable capital inflows by local and foreign investors into the local equity market — all of which occurred in the past few months and indicated that the market is now “less attractive” compared to others in the region.
Citigroup had an aggregate Taiwan weighting at 18 percent before the adjustments, with Taishin Financial representing 1 percent and Chinatrust Financial 2 percent.
Despite the 3 percentage point cut in the weighting, it “still leaves us overweight on Taiwan,” Citigroup said. “China remains an underweight [market], but less so.”
The changes, however, leave only five Taiwanese shares in Citigroup’s regional model portfolio, namely Taiwan Semiconductor Manufacturing Co (台積電), Acer Inc (宏諅), Far EasTone Telecommunications Co (遠傳電信), Taiwan Mobile Co (台灣大哥大) and Formosa Plastics Corp (台塑).
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