Credit Suisse Group yesterday upgraded Taiwan’s equity market to “overweight” from “underweight” after major technology firms posted strong earnings and the local bourse lagged behind regional peers.
Sakthi Siva, regional strategist at the Zurich, Switzerland-based company, made the rating adjustment, meaning Credit Suisse intends to increase its stake in domestic shares, especially of blue-chip tech firms.
“The upgrade is based on signs of global industrial production bottoming, [that the] Taiwan market has lagged and valuations [on the price-to-book versus return-on-equity ratios] are now in line with the region,” the analyst said in a statement. “Local shares are underowned among foreign investors while posting better earnings.”
Last week, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, reported a record net income of NT$46.94 billion (US$1.52 billion) in the third quarter, rising 16 percent from the second quarter, on robust demand for chips used in communications products.
HTC
HTC Corp (宏達電), the world’s largest maker of handsets running Windows Mobile and Google Android platforms, also said last week it expects revenue to surge 143 percent year-on-year to NT$100 billion this quarter after net profits expanded 53.6 percent to NT$46.94 billion last quarter amid strong demand for smartphones.
“We retain confidence in domestic stocks in our portfolio with leverage to a macro recovery and product cycle themes in tech,” the report said. “We expect a modest upward trend to the TAIEX into the year’s end, with elections looking too close to create a substantial swing towards either political party.”
Taiwan is to elect new mayors for its five special municipalities on Nov. 27, a race widely considered as a prelude to the presidential election in 2012.
The benchmark TAIEX closed 0.42 percent lower at 8,344.76 yesterday after growing 12.39 percent in the July-to-September period.
Cathay Financial Holdings Co (國泰金控) told an investors conference on Monday its investment in domestic stocks generated a 10 percent return in the third quarter.
SELECTIVE
Credit Suisse, however, said it remained selective on tech product cycles.
“We still prefer companies -leveraged to smartphones and tablet product cycles,” the report said, citing HTC, chip packager Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), Wintek Corp (勝華) and Pegatron Corp (和碩), a contract manufacturing spin-off of Asustek Computer Inc (華碩).
ASE
In the third quarter, ASE posted its strongest quarterly net profit in more than four years at NT$5.46 billion, while Wintek’s net income almost tripled to NT$1.24 billion on growing shipments of high--margin touch panels.
Credit Suisse also favored large tech firms with attractive valuations such as TSMC.
As for non-tech firms, the company said EVA Airways Corp (長榮航空), Chinatrust Financial Holding Co (中信金控), Taishin Financial Holding Co (台新金控) and Taiwan Cement Corp (台泥) are its top picks.
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