Mon, May 15, 2000 page20

• Investors stuck in a range-bound rut

  Uncertainties such as China's reaction to the presidential inauguration and a likely increase in US interest rates have made traders cautious. Mutual funds have redeemed 10 percent of their holdings

  • By Michael Logan / STAFF REPORTER
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  Low turnover and lackluster buying by the nation's institutional and retail investors has become the norm in recent sessions -- leaving the TAIEX stuck in a range-bound rut.

  Keeping investors on the sidelines is Saturday's presidential inauguration, an event many market participants feel could be accompanied by heightened cross-strait tensions.

  But perhaps more worrisome is an anticipated 50 basis point hike in US interest rates; the NASDAQ' mood swings in recent days has had investors dumping Taiwan shares one day and buying back in the next.

  "Due to uncertain factors and a lack of a market theme, we expect the market to consolidate between 8,500 and 8,800," wrote Taiwan International Securities (金鼎證券) last week, in a research note to investors.

  After sliding 1.4 percent in the May 2 to May 6 period, the nation's main index dipped another 1.1 percent last week, or 96.69, to 8,560.44. The Over-the-Counter index dropped 6.93, or 2.6 percent, to 255.05.

  But even though the TAIEX is off more than 16 percent since reaching an earlier closing high of 10,202.20 -- and despite many rosy projections that see the index reaching 13,000 by the year's end -- neither institutional nor retail investors have shown much inclination to buy lately.

  From foreign institutional investors, there was just NT$1.18 billion in net buying last week. Earlier in the year, these investors bought on average a net NT$2.2 billion each day the market was open.

  Local mutual funds haven't been buying, either. In the May 2 to May 6 week, mutual funds redeemed 10 percent of their holdings for cash.

  Currently, just under 85 percent of the average mutual fund's holdings are equities, compared to 90 percent when the market was in a bullish phase.

  Steel stake

  China Steel (中鋼) closed slightly higher last week, despite news that a group led by the company won priority negotiating rights to build a light rail system in Kaohsiung.

  The group, in which China Steel holds a 20 percent stake, plans to begin construction on the project Nov. 30. The system is expected to take six years to complete, with an investment of an estimated NT$172 billion.

  China Steel closed at NT$22.6 percent last week, up NT$0.30, or 1.3 percent.

  But while the news was barely noticed by the market, analysts applauded the development, saying the project would help the "traditional industry" stay relevant in today's economy.

  "It signals how a leading Taiwan `old economy' stock is diversifying its business lines and risk," wrote investment house National Securities (建弘證券).

  Taiwan International also noted that China Steel, as the nation's largest steelmaker, would benefit from rising demand for steel products. Analyst Charles Yang rates China Steel as a "buy" with a six-month price target of NT$30 per share.

  Currently, the company is trading at 10.97 times estimated 2000 earnings of NT$2.06 per share.

  Other investors in the project include Southeast Cement, Ta Chong Bank and Kaohsiung Bank. Siemens AG of Germany will hold a 10 percent stake and supply trains and operating systems.

  Projected DSL revenue

  Broadband access equipment maker ZyXEL Communications has been tipped as a "buy" by Taiwan International Securities.

  In addition to manufacturing traditional modems, ZyXEL makes high-speed DSL modems and routers -- a piece of the equipment puzzle that telecoms use to deliver high-bandwidth content to homes.

  Analysts expect that in the years ahead much of ZyXEL's revenue will come from DSL products in a shift away from pedestrian modems.

  As Internet users around the world grow increasingly frustrated with the World Wide Wait, sales of DSL equipment globally is expected to growth at a 111.4 percent compounded average growth rate over the next five years.

  Taiwan International sees ZyXEL reaching NT$180 over the next six months, or 60 times its estimate of NT$3.01 in earnings per share this year.

  Some positive developments for the company this year was its contract to supply Chunghwa Telecom (中華電信) with ADSL equipment. That deal could contribute NT$500 million to ZyXEL's sales of an estimated NT$280 billion this year. In addition, the deal could add an estimated NT$115 million in earnings.

  ZyXEL also recently announced that it would be supplying US Internet service provider Earthlink with ADSL routers.

  The company's shares closed at NT$112 on Friday, up NT$6, or 5.3 percent.

  For your information

  2002 China Steel

  * Although a group led by the company won priority negotiating rights to build a rail system in Kaohsiung, China Steel closed up 1.3 percent last week

  For your information

  TAIEX

  *Analysts say the main index is likely to remain range bound, with the market expected to consolidate between 8,500 and 8,800. It fell 1.1 percent last week

  For your information

  OTC

  *The Over-the-Counter index slipped 2.6 percent last week, ending at 255.05. Many investors were unwilling to buy as a number of uncertainties loom
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