Tue, Mar 13, 2001 page18

• Fortis researcher looks into Taiwan

  With stock markets continuing to remain highly volatile, local investors remain confused by the complexity of economic developments both domestic and overseas. What sort of strategy should investors adopt? 'Taipei Times' staffer Tsering Namgyal caught up yesterday with Lena Tan, director of research for Asia at Fortis Investment Management, one of the world's largest fund management houses, to discuss her views on investment strategy in Taiwan

  • By Tsering Namgyal / STAFF REPORTER
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  Taipei Times: Do you think it is now time for the longer-term investors to be buying stocks in Taiwan?

  Tan: We are now recommending to buy on the dips. The Asian tech stocks have come to very attractive valuations. It has gone back to the lows we saw in the early 1990s. We will see very disappointing earnings for the tech sector this year, but we buy tech stocks at the bottom, which is now. If we take a 12 to 18 month horizon, this is probably the best time to buy Asian tech stocks because this is the last down-leg of the bears selling.

  TT: Which technolgy sub-sectors do you like?

  

  Fortis Investment Management's Lena Tan addresses an Asian investors' conference in Taipei yesterday.

  PHOTO: GEORGE TSORNG, TAIPEI TIMES

  Tan: In Taiwan, stick with basically the globally-competitive export firms, such as TSMC (台積電), VIA Technologies (威盛) -- it is still too early to try to go into the downstream component sectors, which will still suffer from the declining growth in PC demand.

  TT: Do you think the monetary policy is supportive in Taiwan?

  Tan: There is room for rates to fall more. Domestic demand is falling very sharply, and the export sector is not coming through with a strong contribution. The government has leeway to cut interest rates ... I mean without undermining the NT dollar, although it may not be such a bad idea for the NT dollar to decline, because it will help the tech sector. Overall, we might see more rate cuts across the region and we believe that Taiwan and Korea are the two countries that will see more rate cuts largely because they have lagged [behind the US].

  TT: In Taiwan, what is your outlook for interest rates?

  Tan: This is going to be [a key] feature of Asian markets. Lots of rate cuts will be coming in because we will see a sharp deceleration of domestic growth. And in the context of slowing technology demand, I think the government realizes that you have to pump prime domestic demand and instill domestic confidence.

  TT: You think we should tighten our belts in terms of investment?

  Tan: It is not going to be easy and you have to have the appetite for risk going forward. The markets will be very volatile and you will have the nerve to ride through this volatility. This is why we suggest not going into second-tier or downstream type of companies. Some of the component manufacturers such as Asustek are now moving facilities into China. This is really the longer-term story of Taiwan tech companies in terms of relocating their production base to cheaper destinations such as China. So we are very positive on the "Greater China Economic Bloc" story for the tech sector.

  TT: You have often stressed that there is no systemic risk in the banking system? Are you happy with how things are proceeding on this restructuring front?

  Tan: You are beginning to see a more concerted move by the government concerning the merger and acquisitions law and the holding company law which will encourage consolidation in the banking system. I suspect you will see that Taiwan will follow the Korean government's path in nudging some of the weaker banks to find suitors with stronger banks.

  But I think the regulatory issues have to be resolved first in terms of how the government will allow cross-shareholdings among financial institutions. Certainly, you can argue that the non-performing loans in the banking system are 10 percent or more, but it is not so high that it will cause systemic risk.

  TT: So you recommend buying banks in Taiwan because they are cheaper based on regional comparisons?

  Tan: We believe that some Taiwan banks have attractive valuations. We like, for example, Chinatrust Bank (中國信託), which is trading at 1.5 times price to book which is not terrible vis-a-vis Hong Kong banks which usually trade around 3 and 3.5 times on price to book basis.

  I know that the quality of banks are different. But then you have banks like Chinatrust, which are responding to the competitive challenges of the marketplace and becoming much more IT-equipped to deal with customer-oriented service. Paying 1.5 times multiple for these banks are not too demanding.

  TT: In terms of portfolio management, how much do you recommend investors put in IT and how much in defensive stocks such as banks?

  Tan: It is too high-risk to go purely IT at this level. If you buy 100 percent IT, then the market falls further, and you have no room to buy more. What I would suggest currently is around 70 percent weighting in technology stocks -- because the market average weighting is around 55 percent.

  So you might want to put 60 to 70 percent of your portfolio in IT with the remaining being spread between the banking sector, in which we would encourage you to put around 20 percent, and the rest in consumer and cyclical stocks.
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