UBS Securities lowers its year-end forecast for TAIEX on weak demand
Swiss brokerage firm UBS Securities lowered its forecast for the TAIEX, the Taiwan stock exchange’s benchmark index, for the end of the year from 9,200 to 8,550 points Thursday, its fourth cut in over two months.
“We believe one of the key drags on the market is a lack of fundamental support. In particular, weakness in end-demand from emerging markets, includ- ing China, continues to serve as a major headwind for Taiwan tech,” said William Dong, equities and research head of UBS Securities’ Taipei branch.
“For non-tech sectors, including bicycles, tires and materials, slow conditions in China continue to be a challenge,” Dong wrote in a note to clients.
The analyst said he expects Taiwan’s exports to remain weak in the second half of this year and sees potential downside risk to UBS Securities’ forecast for Taiwan’s market earnings growth of 8.2 percent in 2015.
With already a muddled outlook in fundamentals, Dong said the recent depreciation of the Chinese yuan is adding to the uncertainty.
“While we believe a lower yuan should incrementally help improve cost structures for Taiwanese companies with operations in China, on the flip side, it raises questions about the state of end demand in China for Taiwanese tech,” Dong said.
“Separately, for Taiwanese financials, we see the lower yuan as a potential negative as it may reduce Chinese demand for offshore U.S. dollar loans provided by Taiwanese banks,” he added.
As of 11:02 a.m. Thursday, the TAIEX had risen 0.13 percent to 8,294.20 points.
In a report dated June 4, UBS Securities dropped its TAIEX target from 10,600 to 10,000 points, citing concerns over fundamentals and uncertainty over the outcome of the 2016 presidential election.
The brokerage again lowered its TAIEX target in another report released July 2 from 10,000 to 9,750 points, citing potential risk to earnings, and trimmed its target for the third time July 17 from 9,750 to 9,200.