Investors looking for tips on where Taiwanese shares will be heading next year might be puzzled by the mixed outlook for the local tech sector, based on a spate of corporate earnings conferences lately.
Still, investors could pay attention to the nation’s upstream technology sector, life insurers and selective non-tech manufacturers in the textile, contact lens and bicycle businesses, JPMorgan Securities Asia Pacific Ltd said yesterday.
In a report authored by Hong Kong-based analyst Alvin Kwock (郭彥麟), JPMorgan expects the nation’s GDP to expand 3.1 percent on recovering economies in China and the US, following growth of 1.8 percent for this year.
The TAIEX, which is in retreat from 8,439 points, has risen 6.39 percent since the beginning of the year. It closed 0.18 percent higher at 8,191.46 yesterday.
“We expect second-half trends to continue” into next year, Kwock said in the report. “The visibility for semiconductor profits is higher than for downstream [tech firms].”
Kwock said Apple Inc’s plans to diversify suppliers and the tech industry’s anticipated end to inventory adjustments by the end of the year should support semiconductor stocks, such as wafer foundry Taiwan Semiconductor Manufacturing Co (台積電) and chip packager Advanced Semiconductor Engineering Inc (日月光).
Investors should avoid downstream assemblers such as Pegatron Corp (和碩), as these firms will face significant order reshuffling and shrinking margins, he said.
JPMorgan also favors Taiwanese insurance players such as Cathay Financial Holding Co (國泰金控) because of their direct correlation with higher US bond yields.
That is because every 50 basis-point increase in US long-term bond yields is likely to lead to a rise of 25 percent in Taiwanese insurers’ embedded value, compared with a 10 percent growth in their peers in China and South Korea, the US brokerage said.
As for the selective non-tech players in the textile, contact lens and bicycle sectors, the brokerage indicated that their earnings resilience stories have not been duly appreciated by the market, saying its topics include apparel maker Makalot Industrial Co (聚陽) and precision machine component supplier Hiwin Technologies Corp (上銀).
Textile names such as Formosa Taffeta Co (福懋), Eclat Textile Co (儒鴻) and Toung Loong Textile Manufacturing Co (東隆), as well as the potential non-tech beneficiaries of the US-led Trans-Pacific Partnership (TPP) are also favored by the non-tech research team at Macquarie Capital Securities Ltd.
Macquarie analysts led by Corinne Jian (簡秋萍) said that the non-tech sectors are likely to do well next year, or at least in the first half of next year, as liquidity in Taiwan is likely to continue flowing into non-tech sectors, given the expected lack of new flows in the tech space over the next three to six months.
“We would like to reiterate our positive view on the Taiwanese non-tech space and see more upside ahead, as many interesting non-tech names are still under-researched and not well-known or well-owned,” Macquarie analysts said in a report on Nov. 8.
However, Yuanta Securities Corp (元大證券) economist Aiden Wang (王誠宏) said last week that non-tech stocks, which have shown continuous rallies in the past two quarters, could face a pullback in share prices in the near to medium term, especially for those whose third-quarter sales growth failed to keep up with their share price rallies.
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