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Taiwan Stocks Fall Most in Six Months on Earnings, LCY Concerns

Taiwan’s stocks fell the most in six months after smartphone maker HTC Corp. (2498) reported slumping sales and petrochemical companies extended losses amid a probe into a deadly industrial accident.

HTC dropped to a six-month low after July sales declined. Taiwan Semiconductor Manufacturing Co. (2330) and Hon Hai Precision Industry Co., which have the biggest weighting on the index, sank at least 3.2 percent. LCY Chemical Corp. (1704) slumped by the daily limit for a third day after prosecutors searched the company’s factory.

The benchmark Taiex index lost 2 percent to 9,141.44 at the close, the most since Feb. 5. The gauge has fallen 4.5 percent since reaching a seven-year high on July 15, when Morgan Stanley downgraded the island’s stocks on valuations. Preliminary investigations indicated that seepage from LCY Chemical’s system may have caused last week’s explosions that killed at least 28 people in Taiwan’s second-biggest city of Kaohsiung.

“The Kaohsiung explosion is weighing on companies such as LCY on concern about damages payout,” said Henry Miao, a manager at Hua Nan Securities Co. “There’s also some profit-taking after recent gains in blue-chip companies amid bad earnings in the tech sector.”

LCY plunged 19 percent in the past three days, a record loss for the period. Prosecutors searched a factory in Dashe yesterday to collect documents, the company said. At least 305 people were injured in explosions just before midnight on July 31. Asia Polymer Corp. plunged 5.1 percent. USI Corp. slid 5.6 percent.

HTC dropped 4.4 percent after July sales fell 33 percent from a year ago. Slumping sales may hinder a bid for a turnaround, according to John Butler and Matthew Kanterman, telecom analysts with Bloomberg Intelligence.

Samsung Rivalry

TSMC fell 3.2 percent, while Hon Hai slid 3.3 percent. The two companies gained at least 2.9 percent yesterday. Samsung Electronics Co. has been selected to produce next-generation processor chips for Apple Inc. (AAPL)’s iPhone 7 model, Maeil Business Newspaper reported, citing unidentified industry people. TSMC is supplying chips for iPhone 5S and the upcoming 6 model, it reported.

The Taiex has risen 19 percent since the start of last year, sending valuations to 13.7 times projected earnings, compared with 11.1 times for the MSCI Emerging Markets Index, which has gained 1.2 percent.

Taiwan stock valuations have become less attractive after rallies with technical indicators showing equities being overbought, Morgan Stanley analyst Jonathan Garner said in a report as he downgraded equities to equal-weight from over-weight. The brokerage earlier in the month also cut Asia’s semiconductor industry to equal-weight from over-weight.

Taiwan’s best-performing equities fund said July 2 it was bracing for stock market declines over the next two months after the biggest foreign inflows in Asia this year.

The fund will probably pare positions in some semiconductor makers while buying Apple suppliers after the market retreats, said Shen Chien-hung, the acting manager of Taishin 2000 High Technology Equity Fund. (SHE2KHT)

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Allen Wan, Phani Varahabhotla

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