Taiwan's tech sector hit by fall in demand

Added 26th November 2015

Slower smartphone sales and weak demand for other electronics have caused a major sell-off in Taiwan's tech sector, according to JP Morgan.

Taiwan's tech sector hit by fall in demand

The country’s 1% third quarter GDP decline was the first year-on-year contraction in six years, according to government statistics. The dismal GDP figure prompted the Taiwanese government to announce a short-term $125 million package to boost short-term consumption.

The top five performing Taiwanese equity funds, measured by the trailing three years, are heavily overweight in the information technology sector.

The top performing fund is the LionGlobal Taiwan product, which is diversified into other sectors such as financial and basic materials.

A snapshot of the top five Taiwanese equity funds:

Taiwan is a key supply-chain hub for high-tech products, and many of the island's companies that do contract manufacturing for names such as Apple and Hewlett-Packard have been hit hard.

"With weak guidance in the technology sector, investors remain cautious about further potential earning downgrades."

“With weak guidance in the technology sector, investors remain cautious about further potential earning downgrades. The technology sector has seen a major sell-off on the back of concerns over slower smartphone demand and weak demand for notebooks and LCD televisions,” JP Morgan noted in a disclosure.

The fund house confirmed that while the current climate in challenging, it remains positive on the technology sector given near-trough valuations.

“Further earnings downside should be limited unless we experience a global demand shock,” JP Morgan said.

Henderson Global Investors (HGI) noted that Taiwanese companies remain committed to rewarding its investors despite the tough economic climate. The Henderson Global Dividend Index for the third quarter, released in November, revealed that Taiwan’s headline dividends are up 12.5% and underlying dividends up 26.5%.

HGI said that Taiwan grew strongly at the underlying level on higher payout ratios. Taiwan Semiconductor Manufacturing paid a record dividend for the third quarter, in line with increased cash flows.

Aberdeen Asset Management halved its projected GDP growth for Taiwan in October to 1.56%. The fund house noted that the reduced demand for Taiwan's electronics components from the emerging markets will have a negative impact on the country's GDP. 

Taiwan’s official GDP growth forecast stands at 1.56%, a sharp slowdown from 3.77% in 2014. This GDP forecast is the lowest in six years, with expectations of a downward revision at the end of this year, according to government statistics.

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