Taiwanese stocks are tumbling at the fastest pace in Asia as record high valuations versus the region and slumping exports prompt foreign investors to sell.
The benchmark Taiex Index (TWSE) has lost 7.5 percent since the end of September, leading declines among Asia’s developed and emerging markets, after its average valuation reached 18 times estimated earnings, 43 percent higher than the MSCI Asia Pacific Index (MXAP)’s multiple. Overseas investors sold a net $803.5 million of Taipei-listed shares this quarter to yesterday, the second- biggest outflows after South Korea among 10 Asian markets tracked by Bloomberg.
Taiwan’s falling exports have spurred China Merchants Securities Co.’s Ronald Wan to sell the island’s shares in the past two months and increase holdings of Chinese companies in Hong Kong, where the benchmark index for mainland equities is valued at a 51 percent discount versus the Taiex. While price- earnings ratios usually climb as growing investor confidence boosts stocks, Taiwanese valuations increased as earnings in the Taiex gauge slid 27 percent this year, data compiled by Bloomberg show.
“Given the slower growth, I think the Taiwanese market is not cheap,” Wan, the Hong Kong-based managing director of China Merchants Securities, wrote in a Nov. 10 e-mail. “If the global market slows down, the Taiwan economy will be affected.”
Wan’s firm manages money for China Merchants Group, a state-owned conglomerate with $970 billion of assets. Daphne Roth, the Singapore-based head of Asia equity research at ABN Amro Private Bank, also prefers Hong Kong-listed Chinese shares as well as equities in South Korea, where the Kospi Index’s price-to-estimated earnings ratio is 44 percent lower than the Taiex’s 17.2 times.
The Taiex sank 1.8 percent today, the most among Asian benchmark indexes tracked by Bloomberg, to 7,136.05, the lowest close since Oct. 29. Taiex trading volumes today were 31 percent more than the three-month daily average, according to data compiled by Bloomberg. Taiwan dollar forwards fell the most in two weeks as traders said the central bank was tightening restrictions on purchases of the local currency to limit appreciation that may hurt exports.
“I am still quite cautious on Taiwan,” Roth, whose firm oversees about $207 billion, said by phone on Nov. 6. “Exports have come off quite a lot for the year. The visibility isn’t there yet.” Roth has a neutral view on Taiwanese equities.
HTC shares tumbled as much as 18 percent after the Taoyuan, Taiwan-based company forecast on Oct. 26 its lowest quarterly sales since 2010 for the three months through December. The stock slumped 6.8 percent today, snapping a five-day, 25 percent surge, after the stock exchange said it’s probing trading in HTC shares before the Nov. 11 announcement of a patents settlement with Apple Inc.
Acer posted third-quarter profit on Oct. 22 that missed analysts’ estimates amid declining sales and market share. The Taipei-based company’s shipments in the period slumped 10.2 percent from a year earlier, more than the 8.3 percent drop in global shipments as estimated by Gartner Inc. Acer shares are down 13 percent since the results.
Among Taiex companies that reported quarterly profit since the Sept. 30, 58 percent missed analyst estimates, according to data compiled by Bloomberg. UBS AG, top ranked for Taiwan equity research in 2011 by Institutional Investor magazine, said in a Nov. 6 report it may downgrade its 2013 Taiwanese profit growth forecast.
“To turn positive on the market, we may need to wait for an inflection point in tech shipment,” wrote William Dong and Camellia Cheng, Taipei-based analysts at UBS.
The slump in stocks is luring Howard Wang, JPMorgan Asset Management’s Hong Kong-based head of Greater China, who favors property developers. He declined to name specific companies.
“I’m a buyer,” Wang, who oversees about $7.5 billion, said in an Oct. 30 e-mail. “There are lots of cheap equities in Taiwan once you remove the cyclical noise. They also tend to have higher dividend yields.” The Taiex has a dividend yield of 3.76 percent, the highest among Asia’s 10 largest markets.
Overseas institutions were net buyers of equities in five of the seven days through yesterday, data compiled by Bloomberg show. They were net sellers in all but eight trading days in October, the data show. Foreign investors accounted for 33.69 percent of Taiwanese stock trading in the week to Nov. 2, according to data from the island’s stock exchange.
Taiwanese exports fell 1.9 percent in October, the eighth monthly decline this year. Overseas shipments will slump 2.5 percent this year, the government forecast on Oct. 31, increasing an earlier prediction for a 1.72 percent drop. The government cut its 2012 economic growth estimate to 1.05 percent from 1.66 percent as gross domestic product expanded a lower- than-estimated 1.02 percent in the third quarter.
Bank Julius Baer & Co., which manages about $294 billion globally, is advising clients to favor stocks in Thailand and the Philippines, on expectations their economies are more protected than Taiwan’s from the global slowdown. Declines in Taiwanese stocks can be “more pronounced” during a global sell-off, said Kevin Pollack, a managing director at Paragon Capital in New York, said by e-mail on Nov. 8.
“There is investor concern that Taiwanese companies, and demand for their products and services, may be more negatively impacted by weakening economic activity in Europe and negative global forecasts for Asian markets,” Pollack said. “Profit- taking is to be expected.”
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