Despite the gloomy external picture which
will limit market upside, we believe that the downside is likely to be limited for the
Taiwan market:
Firstly, the government is easing restrictions on cross strait exchange.
Yesterday’s announcement that China Airlines (2610) will invest US$60m in China
Eastern’s (PRC) cargo business indicates that the government has already quietly
lifted the US$50m cap on China investment.
Secondly, China looks poised to accede to the WTO this year, with Taiwan
to follow suit. This will raise expectations that official cross strait dialog will begin
to facilitate the development of “business to business” cross strait exchange
and to reduce the likelihood of confidence-destroying cross strait saber rattling.
Political stalemate is likely to end following year-end elections as
President Chen has already called for a coalition government.
Consolidation of the banking sector is underway with the recent seizure
of 36 credit cooperatives.
Lastly, the Taiwan market is already at a 10-year low, while US market
indices are still not too far off all-time highs.
Following warnings from Ericsson and Alcatel earlier this week, last night
both Intel and Motorola pointed out that growth would be sequentially flat in 3Q01, down
from earlier indications of as much as 5% improvement. On the other hand, National
Semiconductor said that it expects a 5% - 7% increase in sales in 2Q01 (Sept - Nov 2001)
following an improvement in bookings.
We view Intel’s comments as a more accurate gauge of the state of the
overall semiconductor market as its microprocessor market share is above 70%. Furthermore,
our statistical analysis shows that semiconductor sales are lagging GDP and that a
reversal of GDP deterioration isn’t likely until later this year. In the US last
week, 2Q01 GDP growth estimates were revised down to 0.2% compared to an estimate of 0.7%
a month ago. Moreover, last night it was reported that the US National Association of
Purchasing Management’s (NAPM) Non-Manufacturing Business index reached a new low in
August, suggesting that most service sector industries are contracting. |
