Taiwan faces “contagion” risks as slowing U.S. consumer spending reduces demand for the island’s exports, Credit Suisse Group AG said, prompting the brokerage to cut its yearend forecast for the benchmark index by 14 percent.
“We have turned more defensive on our Taiwan portfolio since May 24 due to rising uncertainty on Europe but now turn cautious,” Randy Abrams and Josette Chang, Taipei-based analysts at Credit Suisse, wrote in a report. U.S. consumption is “slowing and showing signs of contagion, impacting Taiwan’s export sector,” according to the report.
The brokerage cut its yearend target for the Taiex index to 7,300 from 8,500, according to the note. The 722-stock index rose 0.5 percent to 7,656.47 as of 11:59 a.m. local time, paring the loss this year to 6.5 percent. The U.S. is the biggest buyer of Taiwanese goods after China.
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously estimated, the Commerce Department said on Aug. 27. A report due Sept. 3 is forecast to show an increase in the jobless rate to 9.6 percent from 9.5 percent in July, according to a Bloomberg News survey of economists.
Taiwan’s stocks may be set for a “pull-back” in the fourth quarter as growth slows in 2011 and as some of the island’s industries enter a “more mature phase,” William Dong, analyst at UBS AG, said in an Aug. 23 report.
The Credit Suisse analysts said investors should favor the larger technology companies including Taiwan Semiconductor Manufacturing Co., the world’s biggest custom chip manufacturer, and MediaTek Inc., the island’s largest chip designer, amid increasing risks of a drop in demand.
The brokerage also recommended shares of Eva Airways Corp. and China Airlines Ltd. on expectations that passenger traffic will rise following an increase in cross-straits flights. It also likes President Chain Store Corp., an operator of convenience stores.
— With assistance by Shiyin Chen