Friday, March 10, 2006

ABN AMRO: Investors should avoid Taiwan

The International Herald Tribune reports:

Investors should favor Korean shares because companies in South Korea are investing more to expand amid faster economic growth, according to ABN AMRO Asia. They should avoid Taiwan because of unstable political relations with China.

Capacity utilization rates in South Korea suggest that companies are increasing capital expenditure, ABN AMRO said. Tension between Taiwan and China over the island's sovereignty will deter investors from pushing up the Taiwanese market, it said.

"Korea has moved out from its recession and into a full-phase recovery," said Eddie Wong, chief Asian strategist at ABN AMRO in Hong Kong. "Taiwan's economy has already peaked and its domestic demand will further slow this year. It also has substantial political risk."

....explaining at the end of the article:

"The economic outlook for Korea remains firm," White said in a research note dated March 2. South Korea's stock market "will continue to re-rate relative to the rest of the region."

Investors often switch between the two markets because their make-up is similar. Technology stocks account for more than half of the Taiex, and almost a quarter of the Kospi, the largest weightings in both benchmarks. Exports account for 40 percent of South Korea's economy, and about half of Taiwan's.

Exporters' margins - or the difference between the cost of making goods and what they receive for them - have been rising in South Korea over the past 10 years, but declining in Taiwan, ABN AMRO said, partly as a result of better brand creation by Korean companies.

Taiwan companies have not made the difficult transition to branded sales, and the results bode ill for the long-term as their OEM work shifts to China and other places.


Sun Bin said...

"the results bode ill for the long-term as their OEM work shifts to China and other places."

sorry this logic does not flow. shifting OEM work has nothing to do with their branding.

Korea also shifted their OEM works to mainland China.
Some Taiwanese enterprise (eg Acer in Europe) were able to build good brands.

The problem with Taiwanese business is really
1) political uncertainty and interference
2) comparatively (to HK/Korea) much higher cost for manufacturing in mainland China
I have received very strong feedback from Taiwanese factory owners and investment bankers. Many Taiwanese businessmen are increasingly list their company and raise fund in HK, because they cannot invest the $ raised in mainland due to stupid DPP regulation.

Michael Turton said...

I'm sorry, I wasn't clear. Competing businesses in China, India, and S Korea will take their OEM work from them, and without established Brands, they might get squeezed, losing OEM business on one side, and unable to sell through branded sales on the other.

There are a few good brands -- Acer, Giant, etc, and Taiwanese OEMs are well known on the B2B side of things.