TSMC, Formosa, Others Show Taiwan Feels Asia's Pinch
Taipei, July 10 (Bloomberg) -- In the space of a few days, Taiwan's
largest semiconductor maker, insurer and plastics company said sales
tumbled in June.
Three of the island's biggest banks said they set aside more than $100
million to offset mounting bad loans.
And Acer Inc., whose personal computers sport what is probably Taiwan's best-known international brand name, logged its worst month since January.
Halfway through 1998, cracks are starting to appear in what once seemed like Asia's safest havens: Taiwan, its companies and its stock market. Weakening currencies and slowing growth across the rest of Asia are starting to take their toll.
"One can't help but believe that the downturn in Asia's economies will
hurt company sales in Taiwan,'' said Sam Webster, an analyst with Credit Suisse First Boston.
Granted, Taiwan is doing a lot better than many of its neighbors.
The economy, driven by exports of computer chips, PCs, chemicals and
textiles, is likely to grow by more than 5 percent this year even as
South Korea, Indonesia and others slog through recession. And not all
Taiwanese companies are hurting.
Yet the results reported in the past few days show Taiwan can't chart
its economic course alone. Many investors have been betting it can: In
the past month, the benchmark TWSE Index rose about 11 percent in dollar terms, even as similar benchmarks in Malaysia and the Philippines tumbled that much.
Overall, the results are coming in along with expectations,'' said Peter Tsao, the branch manager at ING Barings. ''Fundamentally, there is weakening, but that's to be expected.''
It may take as long as three years for Taiwan corporate profits to
bounce back completely, Tsao said. Until then, ''hold on tight,'' he
said.
Pinch
From electronics to plastics to banking, many Taiwanese industries are feeling the pinch.
Taiwan Semiconductor Manufacturing Co., the second-largest stock in
Taiwan's benchmark stock index and a bellwether for Taiwan's hi-tech
export industry, said that sales dropped 26 percent to NT$3.02 billion
(US$88 million) in June from a month earlier, to the lowest in more than a year. It's share price is down 34 percent this year in local currency terms.
United Microelectronics Corp., TSMC's closest rival, said sales dropped 40 percent and Formosa Plastics Corp., one of the biggest polyvinyl chloride makers in the world, said sales fell 1.3 percent from May.
Not every company had a lousy month.
For example, Mitac International Corp., which makes sub- US$1,000
personal computers for Compaq Computer Corp., said sales in June hit a
record, up 32 percent from May to NT$4.02 billion.
The electronics sector was a mixed bag,'' Tsao said.
Flows
That mixed bag already has some foreign investors pulling back.
According to stock exchange figures, foreign institutions sold a net
NT$1.57 billion of shares in April, a net NT$8.3 billion in May and a
net NT$13 billion in June.
As these investors rushed in and then pulled out, stocks see- sawed. The TWSE surged 15 percent in the first two months of the year, only to surrender the gains in the following months. The index is now down 3.7 percent year-to-date in local currency terms, and down 8.9 percent in U.S. dollar terms.
Asia Bonds
For some banks, the past year's slump in Asian currencies is starting to bite.
Taiwan's three largest publicly-listed banks, Chang Hwa Commercial Bank, First Commercial Bank and Hua Nan Commercial Bank -- reported sharply lower profits after setting aside NT$3.82 billion to cover losses on Asia ex-Taiwan bond and loan portfolios.
The financial storm is squeezing banks' earnings,'' said Jerry Cheng,
fund manager at First Global Investment Trust Co., which runs NT$20
billion in assets. ''Really, we can't expect anything exciting about
them.''
For all that, Taiwan boasts some of the strongest exporters in Asia, a
sound financial system, and US$84.5 billion in foreign exchange
reserves, the world's fourth-largest hoard. Able to export and get
credit when many of Asia's other companies are hobbled by dysfunctional financial systems and trading mechanisms, some Taiwanese companies will prosper.
We're still looking for an upside rally in the second half,'' Tsao
said.
06:39:32 07/10/1998
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