Why Is Credit Suisse Sounding the Alarm Bells On Taiwan’s Tech Stocks? 1

Credit Suisse is worried about Taiwan’s tech stocks

Taiwan (EWT) derives nearly 1/5th of its GDP from exports of technology components, but Credit Suisse believes this may not be sustainable as the country is lagging behind China (FXI) and South Korea (EWY) in its software capability. Tech earnings for Asia have been weak and nearly 66% of Credit Suisse’s Taiwan coverage companies have seen cuts in their EPS estimates.

In a recent report, Credit Suisse mentioned “End market data for 1Q was poor for smartphones and tablets and was in line with expectations for PCs. 2Q is likely to be sub seasonal for PCs and smartphones. The bulk of the optimism now seems to be predicated on iPhone 8 later in the year.” Credit Suisse further cautioned “With valuations now in the expensive half of recent history, and likelihood of further EPS cuts in 2Q for most tech, we reiterate our advice for a cautious positioning.”

Stocks that have seen downward EPS revisions in the last month include Catcher Technology, Hikvision, and Innolux. AAC Technologies has also seen negative earnings revisions.

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Analyst ratings

Analyst estimates tend to drive short-term movements of stocks. Changes in ratings and estimates guide investors towards what markets are expecting from a particular company. The chart above lists the analyst ratings of some tech components manufacturers in Taiwan.

Analysts are most bullish on Flexium Interconnect(6269.TW), Advanced Semiconductors(ASX), and Taiwan Semiconductors(TSM) as these stocks have received the highest buy ratings, and few sell ratings.

Analysts are most bearish on Simplo Technology (6121.TW), Innolux Group (3481.TW) and Casetek Holdings (5264.TW) as these stocks have received the highest number of sell ratings. Simplo Technology has received just 1 buy ratings, 6 hold ratings and 3 sell ratings while Innolux Group has received 8 buy ratings, 5 sell ratings, and 8 hold ratings. Casetek Holdings has received 4 buy ratings, 11 hold ratings and 4 sell ratings.

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