Mon, Dec 06, 1999 page18

• Low prices draw bargain hunters

  • By Michael Logan / STAFF REPORTER
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  Interest in `productivity-driving, inflation-busting' technology firms and government support for `traditional industries' propelled the market up substantially

  Depressed Taiwan share prices last week drew the interest of bargain hunters, who sniffed out deals in high-tech, banks, brokers and traditional industries.

  After closing 5.6 percent lower in the Nov. 22-26 period, the TAIEX came roaring back, breaking the 8,000-point barrier in intraday trading Saturday and closing at 7,964.49 -- up 4.4 percent for the week.

  "It was a surprisingly strong market," said Neal Stovicek, an equities analyst at National Securities Corp. "The correction in the previous week was a tremendous buying opportunity."

  In addition, Stovicek said investors were motivated by the anticipation of mergers in the banking industry, the NASDAQ's rise in the US and growing interest in telecom and e-commerce plays.

  He said the market is beginning to realize that the much talked about "new economy" is real and, as a result, investors are seeking out technology companies that will bring about the "productivity-driving, inflation-busting" benefits of e-commerce.

  Stovicek also said that, looking forward, Taiwan stocks will benefit from Japan's economic recovery, which he described as underestimated. As Japan picks up steam, the nation will increasingly look to Taiwan to outsource production.

  Another piece of positive news was the government's moves to support the so-called "traditional industries," such as steel, cement, textile and construction. The Executive Yuan last week passed measures that would make it easier for traditional firms to raise capital, and government-linked stock funds have been directed to buy shares of traditional companies with low price-to-book ratios.

  "But [traditionals] also have to have some other niche that would be a reason for some people to hold them," Stovicek said -- primarily a technology angle.

  For example, Taiwan Cement rose 20.6 percent last week to close at NT$22.80. The cement maker owns a 20 percent stake in KG Telecom and, according to one report, will realize a NT$600 million windfall from the sale of shares in the firm.

  Another back-door technology play was Far Eastern Textile (遠東紡織), which owns roughly 50 percent of FarEasTone. Far Eastern shares climbed 25.2 percent last week to finish at NT$67.

  Foreign investors seemed to give Taiwan shares their vote of confidence last week.

  In the first three business days of December, global investors poured roughly NT$7.3 billion into Taiwan stocks, Stovicek said. That's about one-third of the NT$27.5 billion in foreign money that bought local shares in the entire month of November.

  "That's a pretty good pace," Stovicek said. "But it could slow toward the end of the month as you see Y2K jitters mount."

  Still, while some investors may take caution ahead of the new year, Stovicek said the NASDAQ's performance last week indicated that in some quarters millennial fears have subsided. "The IT industry has put Y2K behind them," he said.

  Let's make a deal

  Brokerage shares were among the week's hottest plays, boosted by the sentiment that the over-populated industry has entered a period of consolidation.

  Yuanta Securities (元大), the nation's largest brokerage house, announced last Monday that it was teaming up with Core Pacific Securities (京華), the fifth-largest firm. The merger deal would give the combined company a 9 percent slice of the local securities market -- twice as large as its nearest competitor, Jihsun Securities (日盛).

  Yuanta finished the week at NT$38.1, up 17.6 percent from its Nov. 26 close, while Core Pacific ended 19.1 percent higher at NT$24.6.

  "In Taiwan, there are too many securities firms," said Cecilia Liu, also an equities analyst at National Securities Corporation. "They have to fight with each other in order to increase market share."

  As a result, many brokerage firms plan to grow revenues through acquisitions, Liu said, and it was this "investment story" that had set securities houses ablaze.

  Adding fuel to the fire were reports later in the week that Yuanta was still hungry for another acquisition. According to local media, the takeover could come as early as this week and potential targets included securities firms Polaris (寶來), President (統一), Grand Cathay (大華), Tai Yu (台育) and Concord (康和).

  But there was one factor that could spoil Yuanta's appetite: Following the merger announcement, Taiwan Ratings Corp placed Yuanta under "special surveillance," citing potential problems the company could face in its digestion of Core Pacific.

  "[C]ertain uncertainties exist surrounding the specific details and terms of the merger," the credit watchdog said, adding, "whether or not the the new management team can maximize potential synergies ... remains to be seen."

  Merger or no, Polaris, which has caught the attention of international investors such as AXA Investment Managers for its 22 percent share of the Internet stock trading market, rose 28.7 percent last week, closing at a new 52-week high Saturday at NT$26. Since Nov. 15, Polaris has climbed 83 percent from NT$14.2.

  President rose 23.1 percent to finish the week at NT$17, Grand Cathay finished 6.3 percent higher at NT$21.9 and Concord logged in a gain of 17.7 percent at NT$11.95. Tai Yu, on the other hand, dropped 2.6 percent, closing the week at NT$11.

  Despite the rise of many brokerage houses, Liu said further gains were still possible as the Yuanta-Core Pacific deal would give other firms little choice but to seek mergers of their own.

  "There is some upside left," Liu said, adding that she believed Yuanta's resistance level was around NT$60 per share.

  In addition, Liu said the scuttlebutt was that No. 4 President is seeking a partnership with another top-10 house and that China Development Industrial Bank was eyeing Great Cathay, a possibility that has been talked about since October.

  Bank run continues

  Continued hope for mergers in the banking industry lifted the shares of Chiao Tung Bank (交通銀行), International Commercial Bank of China (ICBC, 中國國際商業銀行) and United World Chinese Commercial Bank (UWCCB, 世華商銀) again last week.

  Chiao Tung rose 11.9 percent to end the week at NT$49.80, despite comments from the bank's chairman that no merger talks have taken place. On Nov. 26, Finance Minister Paul Chiu (邱正雄) restated a promise that at least one major bank merger will be unveiled by year-end, and Chiao Tung, ICBC and UWCCB are widely expected to be the participants.

  Chiao Tung is scheduled to hold a shareholders' meeting today.

  ICBC climbed 7.5 percent to close the week at NT$39.9, while UWCCB rose 10.2 percent higher, finishing at NT$43.10.

  Shipping stocks set sail

  Shares of Evergreen Marine Corp (長榮海運) and its unit Uniglory Marine Corp (立榮海運) left port after news reports said Evergreen is mulling a merger with Uniglory.

  The shipping companies also benefitted from reports in local media that direct trade and transport links could follow the entry of China and Taiwan into the WTO.

  Evergreen sailed 15.6 percent higher, finishing the week at NT$29.60. Uniglory came in 14.1 percent higher, ending at NT$19.40.
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