Fri, Jun 24, 2016 page13

• UBS conservative about Taiwan stocks

  HEADWINDS REMAIN: Despite the modest outlook, UBS Taiwan said that the nation’s stocks remain an attractive option with an average market dividend yield of 4.1 percent

  • By Ted Chen / Staff reporter
  • • 
    • 
    • 

  UBS Securities Pte Ltd yesterday maintained a reserved outlook on Taiwanese shares in light of global and domestic headwinds, and advised investors to take shelter in more defensive sectors.

  UBS Taiwan equities and research head William Dong (董成康) said the nation’s economy continues to face headwinds, including volatile oil prices, listless demand growth in the current technology product cycle and slow global recovery.

  “With monthly exports seeing a continued annual decline for most of the first half, overall corporate earnings are expected to dip 6 percent lower than last year,” Dong said at a preannual UBS investment forum news conference in Taipei.

  “On a more positive note, Taiwan’s stocks remain an attractive option with an average market dividend yield of 4.1 percent at a time when developed economies’ bond yields are dipping into negative territory,” Dong said, adding that he expects macroeconomic data to see incremental improvements in the second half from a low base last year.

  However, local shares might lose valuation appeal against prospects of elevated risk-free returns, following implementation of the anticipated US Federal Reserve interest rate hikes later this year, Dong said.

  Dong gave an “overweight” recommendation for the nation’s telecoms and consumer staple sectors, and recommended “neutral” on technology and financial shares.

  Financial institutions are facing more challenges in yielding gains from the more volatile global markets, but life insurance companies are expected to fare better than banks as they take in about US$40 billion in premiums, while investors grow weary of rising uncertainty.

  Meanwhile, defensive sectors such as telecoms provide stable dividend yield rates, Dong said, adding that earnings in this sector are expected to improve as unlimited mobile data contracts are likely to be phased out.

  Regarding consumer staples, the Swiss brokerage is positive about retail growth among supermarkets, convenience stores and online operators, as their product mix is well positioned to capture rising spending on dining out and higher food safety awareness, UBS’ non-tech analyst Ally Chen (陳玟瑾) said.

  While weakening apparel sales in the US market strained Taiwanese textile suppliers in the first half of the year, the effects are offset by rising demand for sportswear, in particular in the less-saturated Asian markets, where fitness consciousness is still growing, Chen said.

  As for technology shares, UBS’ Asia technology hardware head Arthur Hsieh (謝宗文) said that the smartphone segment remains weak, while contribution from emerging segments of virtual reality and the Internet of Things are limited due to still-immature product design and uncertain product outlook.

  In addition, consolidation in the IC assembly and test sector will lead to margin improvements, the brokerage’s semiconductor analyst Bill Lu (呂家璈) said, while downplaying investors’ concerns about price competition from China given their aggressive expansion.

  “Pricing has been rational in the past few years, and the margin erosion is limited only to Chinese companies,” Lu said.

  Separately, CIMB Securities Ltd Taipei-based analyst Nora Hou (侯乃鳳) yesterday said the TAIEX is likely to fluctuate in a band between 7,800 points and 8,000 points in the second half of the year, citing the brokerage’s forecast of an across-the-board 7 percent drop in annual earnings for listed Taiwanese companies.

  Hou said that non-tech and non-financial shares would be the only sectors to show earnings expansion in the second half, according to a client note issued yesterday.

  “We think the current TAIEX valuation somewhat discounts both the lackluster first-half results and improved second-half fundamentals. We expect it to trade rangebound at 7,800 to 8,800 points ... in the next six months,” Hou wrote in the note.

  The TAIEX yesterday closed down 0.45 percent at 8,676.68.
• Most Popular

  • 1

    Typhoon could trigger sea warning, hit central Taiwan

  • 2

    Cancelations announced as sea warning issued for Typhoon Fung-wong

  • 3

    Exports soar 49.7% to all-time high

  • 4

    Fung-wong approaches Taiwan, batters Philippines

  • 5

    Tropical storm expected to strengthen into typhoon later today