By Credit Suisse
We find that Korea and Taiwan typically present the most
effective play in Asia on US growth owing to (i) their relatively
high US-destined export share of GDP at c5%, (ii) the high
proportion of cyclical (export) index inclusions, both in excess of
70%, (iii) the significant revenue generation from US sales, and
(iv) their strong performance correlation with US ISM--this metric
forms part of our four factor econometric regression process for
both countries.
We now equalise our recommended overweight stance on both Korea
(from 30% overweight previously) and Taiwan (from neutral) to 15%
above benchmark considering 10 attributes to establish their
relative merits, of which we find one in favour of Korea, half a
dozen in favour of Taiwan and three equally supportive of both
markets.
In favour of Korea we find: (i) our econometric models suggest
far greater upside for Korea relative to Taiwan; in support of
Taiwan we note: (i) a more conducive growth environment for TSMC
over Samsung Electronics; (ii) Taiwan offers superior profitability
and value creation dynamics relative to Korea; (iii) strong
earnings growth trajectory coupled with positive revisions favours
Taiwan; (iv) the Taiwanese dollar ranks as the most robust EM
currency on our FX scorecard; (v) lead indicators suggest a
stronger short-term economic growth outlook for Taiwan; and (vi)
valuations are tilted in favour of Taiwan versus historical
relative average levels. Supportive for both Taiwan and Korea we
identify: (i) accommodative monetary policy is indicative of
positive equity market returns; (ii) real sector indicators suggest
a relatively buoyant domestic environment; and (iii) positioning of
EM dedicated equity funds provides scope for further
allocation.
We screen for liquid Korean and Taiwanese names, which offer
positive value creation, a 13/15E EPS CAGR greater than EM sector
peers and are Outperform-rated by Credit Suisse analysts. This list
includes: TSMC ( 2330.TT), Hon Hai Precision ( 2317.TT), SK Hynix
(000660.KS), Mediatek ( 2454.TT), NHN (035420.KS), LG Chemical
(051910.KS), Chinatrust Financial ( 2891.TT), Largan Precision (
3008.TT), Catcher Technology ( 2474.TT) and Taiwan Cement (
1101.TT).
Email: asiaresearch@barrons.com
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