Mon, Jan 17, 2000 page18

• Threat of rising interest rates fails to subdue the market

  The TAIEX gained 3.9 percent, as foreign investors returned last week. Investors like the high-tech sector, especially because earnings prospects for the heavyweights remain good

  • By Michael Logan / STAFF REPORTER
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  Taiwan stocks continued on a bull run last week, despite global trepidation about higher interest rates around the world.

  After climbing 4.7 percent in the Jan. 4 to Jan.7 period, the TAIEX gained another 3.9 percent last week, finishing Saturday at 9,191.37. Since the beginning of the year, the main index has climbed 8.7 percent, and over the last 16 trading sessions it has soared 18 percent. The OTC index finished Saturday at 226.88, up 4.4 percent for the week and 9.5 percent for the year.

  Last week also saw the return of foreign institutions, which had temporarily fled the market, spooked by turbulence on the NASDAQ in the US.

  In the first four trading sessions of the year, foreign institutions dumped a net NT$4.7 billion in shares, according to the Taiwan Stock Exchange.

  But last week these investors were net buyers of roughly NT$18.5 billion in shares.

  "Domestic and foreign investors continue to buy electronics," said Neal Stovicek, equities research manager for investment house National Securities Corp.

  Basically, Stovicek said, the high-tech sector is Taiwan's star performer, and earnings prospects for companies such as Taiwan Semiconductor Manufacturing Co (台積1q), United Microelectronics Corp (聯1q), and Acer Inc look excellent this year.

  In the near-term, however, the market could move down slightly in the lead-up to the Chinese New Year, as has been the case historically.

  "The market moves downward" as liquidity decreases, Stovicek said, "sometimes more than 5 to 10 percent."

  Companies need cash to fill red envelopes for their employees, he said. Individuals need to raise money for their own "Hungpao" (紅包), or sometimes they like to pay off bills before the new year begins.

  In addition, many investors don't like to keep their positions open over the long holiday.

  "On the otherhand, this year might be different because of the strong outlook for electronics," Stovicek said.

  For starters, global interest remains strong, and Stovicek expects an average of between US$1 billion and US$2 billion in foreign buying per month for the year. Buying could pick up as international fund managers load up on shares to keep pace with Morgan Stanley Capital International, which will give Taiwan equities more emphasis in its global indexes later this year.

  Secondly, with the strong earnings prospects for technology companies, there is simply little reason to sell off shares.

  And while all eyes may be on the US Federal Reserve, which is expected to hike interest rates 25 basis points next month, Stovicek said inflation still appears not to be a problem in the US.

  If a NASDAQ correction sparked one here, "It would not be prolonged," he said. "Any correction in Taiwan shares would be a buy signal."

  DRAM drdp

  DRAM manufacturers pulled back last week on an analyst's report that the benchmark 64 Mbit DRAM could fall to as low as US$6 in the second quarter.

  The fall in DRAM shares was also driven by a drop in spot market prices last week. According to the American IC Exchange, the benchmark 64 Mbit DRAM traded between US$8.40 and US$8.90 as of Friday, compared to a range of US$8.85 to US$9.38 the previous Friday.

  Powerchip Semiconductor lost 7.1 percent last week, falling to NT$58.5 per share, while ProMos Technologies dipped 4.9 percent, down to NT$97. But Winbond (華11q?l), the nation's largest DRAM maker, held ground with a 1.2 percent gain for the week, finishing at NT$82.

  "In the short-term, the contract prices can pull back -- and that's normal," Stovicek said. The ebb and flow of supply and demand usually produces lower DRAM prices in the second quarter, he said.

  But costs are also falling. For example, the average cost of a 64 Mbit DRAM chip in the fourth quarter of 1999 was US$4.50. The anticipated average cost for the fourth quarter of this year is US$3.40.

  What it all means is that margins for DRAM makers remains comfortable, and they are expected to remain that way.

  Stovicek anticipates 64 Mbit DRAM will fall to US$6.50 in the second quarter, when the industry's average profit margin will be a healthy 42 percent.

  Profit margins are expected to widen in the third and fourth quarters of this year to 48 percent and 51 percent, respectively, as DRAM prices rise to about US$7.00 and production costs continue to fall, he said.

  Increased market share

  Passive component maker Yageo Corp rose last week after local media reported that the company expects its share of the global chip resistor market to reach 20 percent by year end, up from 12 percent.

  Shares of Yageo climbed 14.7 percent last week to NT$42 and set a new 52-week high of NT$43.10 on Thursday.

  In November, Yageo acquired Seattle-based Steller Inc, a passive components supplier that has about NT$450 million in sales per year. The acquisition gives Yageo a foothold in North America, and the company expects to grab a 10 percent share of the US market within two years.

  And while others are cutting back capacity, Yageo is expanding at plants in Taiwan and China -- a move that will allow it to take advantage of the current passive component shortage.

  Analysts expect the company to earn NT$1.69 per share this year. The company currently trades at 24.8 times estimated 2000 earnings.

  Rising spot prices

  Petrochemical material spot prices continued to rise last week, helping to boost the shares of companies such as Taiwan Styrene Monomer and Grand Pacific Petrochemical.

  The spot price for styrene monomer, or SM, rose to as high as US$740 per ton last week, while the price for PVC rose to as high US$760 per ton.

  Taiwan Styrene Monomer rose 10.9 percent to NT$52, while Grand Pacific, also an SM producer, rose 10.6 percent to NT$25.10.

  Taiwan Polypropylene gained 7.86 percent to NT$50 on stronger polypropylene prices. But though PVC prices rose, Asia's largest maker of PVC, Formosa Plastics, finished the week flat at NT$66.
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