Attractive valuations and strong global demand for electronic stocks have led fund managers to remai...
Attractive valuations and strong global demand for electronic stocks have led fund managers to remain positive on Asia.
John Mytton, Far East fund manager at Global Asset Management (GAM), says in Asia, unlike the US, and in Taiwan in particular, technology is seemingly not overpriced, provided you believe the growth rates are sustainable and American demand will not significantly decline.
He says: "An example of a globally competitive and exciting company in Taiwan is Taiwan Semiconductor Manufacturing (TSMC). Its earnings are forecast to grow 66% this year and 73% next year, reflecting the fact that TSMC is possibly the most efficient and focused chip manufacturer in the world. Its first quarter earnings were well above consensus and its sales volumes have been incredibly strong."
What is also interesting, according to Mytton, is TSMC believes prospects for its markets are assured for the next two years, hence the recent decision to undertake annual capital expenditure this year of $3.5bn.
Mytton adds: "This is surely a sign management are convinced of its future prospects. TSMC now counts for 14% of global D-Ram supply and it is an example of a globally-competitive Asian business which has taken the concept of foundry chip-making to a new level. Also, it is strong enough to financially exploit and build on its already large market share."
The Newton Oriental Fund is overweight electronics with around 25% of the portfolio invested in this sector. Erza Sun, fund manager at Newton, says depending on the different cycles, there are good opportunities at all links of the semiconductor food chain, which includes the equipment makers and those that package and test ICs (integrated circuits).
Sun says key electronic companies in Asia, including TSMC and United Microeletronics Corp (UMC) enjoy a 55% global market share in the independent foundry sector. In terms of IC packaging, about 95% is carried out in Asia.
Demand for semiconductors is now outstripping supply, and that is likely to be the case for the next 12 months, Sun says.
This is because there had been a lack of investment in the semiconductor industry over the past few years as a result of the Asian economic crisis, as well as previous overcapacity in the industry. Now production has to catch up with demand.
He says: "This is interesting in terms of price for the memory chips and also the volumes which people are demanding, so we are seeing explosive growth in profits. This quote has been attested by the results from many different companies."
Although one of the stable technology companies, going forward, these are sensitive to further corrections in Nasdaq which could lead to a total sell off in tech.
Sun says: "We expect to now start reducing our exposure after doing really well. When we started to buy semiconductor stocks, only a small percentage of the investment community was convinced of their cycle. Now most of them are won over by the argument."
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