Analysts see a Lien victory, stock rally
HIP-POCKET NERVE: The market has taken a battering this week amid fears the KMT candidate will not win. But analysts say these concerns may prompt Taiwanese to vote with their wallets, meaning a rebound next week
By Michael Logan
STAFF REPORTER
Market watchers expect KMT candidate Lien Chan (üsóâ) to win tomorrow's presidential election, with such an outcome likely to boosts stocks next week.
They also expect the market to trade higher today thanks to government buying aimed at preventing further downturns.
Any further falls after what has already been a tumultuous week of trade would upset voters in the final day before the election.
"[Today] will definitely be an up day because the KMT has to win voters," said Jovi Chen, equities analyst at China Securities.
In addition, Chen said, Lien will likely win tomorrow with supporters of independent James Soong (õ§úú) returning to the KMT fold while undecided voters throw their support behind Lien.
Naiwen Kerr, assistant vice president of Taiwan International Securities, agreed.
"Rational voters will vote according to their best interests," Kerr said.
After China's harsh words on Wednesday which basically advised Taiwan not to pick DPP candidate Chen Shui-bian (üîÏ“®¢), many voters will choose Lien in order to prevent a China temper tantrum, Kerr said.
Furthermore, middle-class voters -- about 30 percent of the electorate -- will pick Lien, as a Chen victory would spell trouble for the stock market.
"When voting for a candidate, you want to make sure you choose the best result for you," Kerr said, adding that undecided and middle-class voters are less ideological or emotional about which candidate they prefer.
"They're not core supporters of anyone. They just vote for themselves," Kerr said. "Most of the people will vote with their wallets."
As a result, many analysts sense a share rally could be in the offing, as stocks have fallen sharply in recent days on concerns Lien would lose the election. The nation's main index has fallen 14.8 percent since reaching a 52-week high of 10,202.20 on Feb. 17. It closed yesterday at 8,682.76, up 42.73, or 0.5 percent.
"An after-election rally is cooking, as we believe Lien has a 70 percent possibility of being elected," Kerr wrote in a research note distributed to investors yesterday morning.
Then there's the fundamental viewpoint -- the belief that the nation's growth prospects and, in particular, the earnings outlook for companies such as Taiwan Semiconductor (TSMC, ¾x¨nûq), make some share bargains too good to pass up.
"If you're a believer in fundamentals, these shares are too cheap," Chen said. "Political problems aside, prices are very, very attractive."
Ralph Dixon, head of sales at Primasia Securities, said buying interest from local retail investors began to emerge yesterday, and he expects it pick up even further today. On top of that, the government bought an estimated NT$20 billion in shares yesterday and is expected to be a heavy buyer again today.
"We're urging people to be bullish," Dixon said. "If you're not weighted up now, you should be doing so fairly quickly."
In addition to IC designers such as Etron Technology, Acer Laboratories Inc and SiS, Dixon likes DRAM makers Powerchip Semiconductor, ProMOS and Winbond (æùûûqÏl).
Chen said he also liked Winbond. "I think DRAM stocks are really cheap. The industry's prospects are getting better," Chen said, who rates Winbond a "buy" with a 12-month price target of NT$140.
Winbond closed yesterday at NT$74.50, up NT$0.50, or 0.68 percent.
Some of the best bargains, analysts said, are foundry plays such as TSMC and United Micro-electronics Corp (µpûq), which are benefitting from the increasing trend toward outsourcing.
For example, Chen said, Motorola is expected to outsource roughly 50 percent of its chip production in the coming years, up from 10 percent.
Chen's 12-month price target for TSMC is NT$280, and NT$180 for UMC. Yesterday TSMC and UMC closed at NT$184 and NT$96.50, respectively.
Like Chen, Jardine Fleming said it favored UMC because of the outsourcing trend. In a February research note to investors, the brokerage firm set its 12-month price target at NT$190.
Jardine Fleming said it liked UMC for its growing presence in the Japanese foundry market, particularly through its partnership with Hitachi.
There are even a few non-technology plays worth considering once the election smoke clears and the market rebounds, analysts said.
Brian Wang, equities analyst at China Securities, said he expects Formosa Chemical and Fiber (¾xÏ’) to reach NT$50 per share based on strong sales of its key product, styrene monomer (SM).
"Its sales have the potential to increase to NT$50 billion this year, maybe higher," Wang said. "It depends on SM prices."
Spot prices for styrene monomer have more than doubled in the last year to roughly US$1,000 per metric ton. Wang said "undersupply in Taiwan and in the Asia region," coupled with higher demand, is helping to lift SM prices.
His colleague, Angela Hsiang, favors Taiwan Styrene Monomer for the same reason. She expects the company to earn NT$3.90 per share this year and rates the firm as a "buy" with a 12-month price target of NT$80 per share.
Formosa Chemical and Fiber and Taiwan Styrene Monomer yesterday closed at NT$43.10 and NT$47, respectively. |
