Walking in the Sun - Part I

                                 I am walking in the sun

                                 And i have nowhere to run

                                 I want to have some fun

                                 Cause i´m walking in the sun

                                 Walking in the sun

                                 Have nowhere to run

                                 I want to have some fun

                                 Cause i´m walking in the sun

                                                     
                                                     Quoted from song lyrics – Walking in the Sun

                                                     Written and Performed by Paranormal Attack

As the mercury is rising and summer is about to arrive, the first true ray of sunshine since subprime mortgage crisis in 2008 is expected to burst forth in US job and manufacturing sectors on tap this week. The 2 main figures, closely-minded by US investors, are monitored to carry improved messages, thereby making a bullish case for them to up antes to magnify market returns.   
Bulls mount a worldwide rally

Few investment missed rally lately when most of commodities in April marked most memorable month in years. Silver future marched to record territory near USD50 an ounce posted in 1980; record-breaking gold settled at USD1,556 an ounce on Comex; and oil price is making after a new milestone, more than tripling since bottoming out in Feb. 2009. The mogul DJIA managed a near-3-year high at the month and seemed to muster bulls to mark up further gains. The buying mania, motivated partly by Fed's moderate monetary policy, has left a mishmash of troubles, including Mid East unrest, Japan misfortune and Europe sovereign debt, now in the rear-view mirror.

Taiwan stock market – shining political and economic views lift shares

Political dramas and prophecies of economic continued to mesmerize domestic investors mercifully. In a less meteoric fashion, Taiwan stock market last week ended with a modest weekly gain of 34 points to 9,007. For April, it had shown much mettle to muster 345 points and migrate over the long-watched 9,000 round level.

The 2012 presidential election candidates from Taiwan's two major parties were revealed last Wednesday, with DPP Chairwoman Tsai Ing-wen winning the opposition party's primary, pitting her against incumbent President Ma Ying-jeou, who was nominated as candidate of ruling KMT party the same day. While Ma was largely viewed as a KMT shoo-in for the 2012 elections, Tsai's nomination was made by DPP polls conducted by 5 separate polling agencies. The polls also showed Tsai won a preponderance of supporters, with 42.50% of devotees versus Ma's 35.04%. To modify the political picture, KMT is thought to manifest its muscle in the market in the lead-up to the election next March.   

A fresh mix of economic medicine was delivered by government to mitigate economic melancholia fueled partly by Japan quake. In 1Q11, export momentum sported 19.5% YoY from earlier-projected 13.1%, and private investment was well mended to mean narrowing negative reading to 0.99% from 5.13%. These better data injected impetus to ramp up the island's 1Q11 GDP growth to 6.19% from prior estimate of 5.01% mapped by the Directorate General of Budget, Accounting and Statistics (DGBAS), an official statistic bureau which accordingly revised upwardly the full-year projection from 4.95% to 5.04%. But the level is moribund against 10.82% in 2010. The DGBAS also mooted a moderately-higher CPI scene for 2011 to be stuck in mediocrity, up 2.18% YoY from previously estimated 2%.

The quasi-official think tank, TIER, was meticulous by readjusting GDP annual rise from 5.71% to 5.72%. While most of economic research institutes managed to map out better economic roadmap, CIER remained meek and cut its forecast. What's worth in mind is that the DGBAS was in a merry mood to ceaselessly mutter about a jump of 2011 GNP per capita income to USD20.848, a new high over NTD20,000 since record begins. But the surge is masked by an appreciation effect of local currency, NTD, which rocketed 18% against USD these 2 years. If mopping out the extraneous factor, the income will meander at a 10-year-ago level.

Table 1 - Taiwan GDP Forecast by various institutes in 2011 (Annual Growth, %)

Institute	DGBAS	Chung Hua Institution for Economic Research, CIER	Taiwan Institute of  Economic Research, TIER	IMF	HSBC	Citi
Current	5.04	4.29	5.72	5.40	5.00	4.50
Previous	4.92	4.50	5.71	4.40	4.70	4.50

Government mulls basic wage hike

Last week, in a move to meld public and private policy to thaw out irreconcilable conflicts, the government seems grudgingly to murmur a 3% hike of minimum monthly wage in private sector that currently stands at a miserable NTD17,880. The proposal means a pct increase modeling after a similar 3% pay rise draft, effective July 1, among public servants who merit watching after a 6-year moratorium for such mercy. The new measure for privately-employed is said to be implemented soon. If the proposal is enacted, the malnourished private masses should feel less moody or malicious in future in wake of receiving the meager price gain, or NTD536, from notional amount termed by NTD. Even so, the rise is still an apparent mismatch compared with an astonishing hike of 17% enjoyed by labors in Eastern China coastal area.

Truly to say, many a little makes a mickle, though Taiwan private sector is not seeing a classic example of race between tortoise and rabbit. After all, the government is still meditating manifold schemes comprising moderating jobless rate below 4%. The rate skidded for the 19th consecutive month to 4.48% in March, down by 0.21 pct from Feb., with unemployed number minced by 23k persons to 499k, below 500k level for the first time since Nov. 2008. The reading can be manipulated lower in a possible case that job availability for temp workers, who are calculated in the employed multitude, is managed higher.     

Main Taiwan shares performances - Industrials run higher

The market has morphed into a stage that sectors have become dramas of their own, and investors actively reacted into every word from listed companies which overall must put forth 2010 and 1Q11 results ahead of May. 02. Table 2 indicates price strength between recently hot issues in a period since Jan. 2009 when the market formed a momentous floor around 4,600 points.  

In the majority of latest market drivers, industrial bellwethers got massive buying from local institutional players who en masses jockeyed positions to benefit from China's 12th 5-year economic plans. Fruitful forays into China market shored up Taiwan Cement and Great Wall stocks to year-to-date highs in lockstep with their HK-traded affiliate stocks. Formosa Plastic remarkably scaled a 20-year high, though the petrochemical giant’s outlook might become murky with earnings metrics to be mangled by shrinking margins due to soaring cost in importing material, naphtha.

Financials hoped to drive market higher

Financials, making up 7% of TSE total value, have been viewed as mainstays for market's maneuver anytime soon to muddle to 2011 intraday high of 9,220 set on Feb. 08. News headlines markedly gushed: "FSC may give a thumbs-up to Chinese banks to invest in Taiwan", and "Taiwan banks to get involved in RMB-related business" after the China Banking Regulatory Commission group visiting the island last week to have talks with Taiwan FSC. Both sides will establish a cross-Taiwan Straits financial supervisory platform. But the meeting was proved to be a mess with no material action, only bringing a morning-after hangover to Taiwan banks. The group's manner somewhat mirrored its compatriot tourists munching their ways over the island while walking in the sun.

Total assets of Taiwan bank hit NTD37 trillion as of 1Q11, only one thirteen of monolithic Chinese peers. Those manning the banking desks in China should make good on a pledge to turbo-charge relations, as hoped by domestic banks which have been marred by a marginalized effect. The sector has wished to have easing rules in multifaceted issues, such as a lifting from using 15% over net worth for Taiwan banks to buy stake in China counterparts which meanwhile can only maximum its interest to 5% in total capital shares of a Taiwan bank. A misunderstanding by Taiwan side emerged as the group can be merely regarded as a vanguard under China hierarchical political structure. Any minor forward step will be surely meddled by China Politburo. Lack of transparency in China banks and approaching Taiwan Presidential election will make the financial link a monumental task. That will be a marathon, not a sprint.

Though traded at a cheap PBR of 1.3X versus TSE's 1.9X, the financial sector will likely witness a fundamentally-ill moment now that a weakness of local real estate market is in the making. Once mortgage turns sour, a stumbling for the sector will be materialized. The 5 government-linked banks in Taiwan underwrote mortgages totaling NTD62.5 bn (USD2.02 bn) in March, mushrooming nearly 100% MoM to a highest monthly record. The lending will be likely marked down in April since the luxury tax has already shown its powerful mojo.

Electronics abuzz with trading topics

There were a lot of trading themes on the electronic universe last week, with bottom lines still the mainstream of discussion. Bears made mincemeat of LCD, LED and solar cell stocks due to their malaises in operations with AUO surprisingly suffering a big mound of loss in 1Q11. Meanwhile, bears sidestepped the NB computer pit as the market has already incorporated information, such as a morose outlook, into the sector's 5-month-ong price meltdown.

Foreigners were in two minds for Acer Inc. Still missing a flip of stock rating to a buy, Acer took a bearish melody swirling in the air after analyst meeting last Thursday, at which its chairman stressed that new management will max out efforts to capitalize on the ICT industry to be remolded next year by Microsoft OS sequel, Window 8, which will own abilities to accommodate mobile devices and provide GPS tie-ins. Some kept mum about the repeated narrative, and then predicted a 26% lowering of Acer stock. But it may not matter. Foreigners posted a net buy of 30 mn shares last Friday for the stock which closed at NTD53.60, up by NTD2.50 WoW. The NB mammoth lately announced a 3-year peak of NTD3.50 cash dividend, and will make itself lean and mean in 3Q11 after a makeover. Its tablet is deemed to be well-received in US and Europe . Acer is by no means an exhausted laggard to be marginalized in the computer arena.

HTC and TSMC receive higher target price

Bulls found mother lode in HTC and TSMC, as might have been expected. Amid a motley of positive news, HTC mounted a spectacular stock push to new apex of NTD1,300. The closing not only marks the 2nd largest TSE monolith in terms of market cap after TSMC, but also means a 21-year pinnacle by a single stock on TSE, only second to all-time high of NTD1,975 scored by Cathay Life (now Cathay Financial Holding) reached in 1989. Meanwhile, HTC is going to pay out 5% stock dividend plus historical high cash dividend of NTD37 since its founding. With its outstanding showings in 1Q11 and already having a moon shot, the handset maker is still appealing to foreign houses with one, headquartered on West Street, NYC, rolling out 2011 EPS of HTC to top NTD100.60. Probably amid a make-or-break motion by the analyst, that lofty expectation also represents an unprecedented event for a highflyer to ever bag triple-digit EPS in TSE history. Others also opined a higher target price over NTD1,430 due to its clear operation visibility.       

TSMC was placed under microscope as the heavyweight IC foundry maker was reportedly making hay while the sun shines. Through the orders from its clients allied with Apple, TSMC is now added to the list of Apple-theme stocks. For each set of iPhone, sale contribution to TSMC will meet USD7. In its latest move, it will spin off the divisions of LED and solar cell to divest NTD12.5 bn and NTD2.8 bn paid-in capital. The split-off date is scheduled at Aug. 1 this year.

While predicted to face declined 2011 EPS to around NTD5 from NTD6.24 last year, the big-cap drew acceptance from a foreign house that buffed the stock to a buy status with upside target to NTD90, a level unseen since 2002. The house also merged TSMC name into its top-picks lists for exposure in Asia . TSMC, settling at NTD73.60 last Friday, actually is a safe mantle, or an ATM machine, for those foreigners to park money in machination tied to cash in on firmer NTD. Due to its heavy weight in TSE index, it is also the most-needed stock for arbitrage trade - hedging between future index and a basket of stocks with close correlations to TSE. But a vault by TSMC to NTD90 will likely coincide with a market retopping over that mighty resistant level of 10,000. And that will be a mind-bending scenario at least at the moment.

Table 2 - Main TSE big-cap movers in recent weeks

Sector	Company Name			TSE Code	2010 EPS (NTD)	1Q11 EPS (NTD)	1Q10 EPS (NTD)	Common Shares (1 mn)	Close (Apr. 29. 2011)	Close (Dec. 31, 2008)	% Chg.	10- Year High (NTD)	PER (Apr. 29, 2011)
Industrial
▼Cement	Taiwan Cemt.			1101	5.57	0.36	1.23	3,692	41.95	34.00	23	60.70	7.53
▲Food	Great Wall			1210	2.36	0.79	0.21	494	35.50	35.20	1	52.90	15.04
▼Petroche. & Plastic	Formosa Pla.			1301	7.44	2.47	1.34	6,120	117	97.50	20	117	15.73
	Nan Ya			1303	5.22	1.70	1.15	7,852	87.80	35.30	149	99.00	16.82
	FormosaChe.			1326	8.33	3.23	2.00	5,690	114.50	69.40	65	119	13.75
	FormosaPet.			6505	4.3	1.88	1.08	9,525	100.50	67.80	48	108.00	23.37
▲Glass	Taiwan Glass			1802	2.51	0.46	0.44	2,068	46.70	18.70	150	48.90	18.61
▲Rubber	Taiwan Syn.			2103	5.03	2.52	0.99	649	85.50	24.50	249	90.70	17.00
Electronic
▼NB Computer	Compal			2324	5.00	0.80	2.00	4,433	32.45	17.20	89	61.00	6.49
	Acer Inc.			2353	5.57	0.45	1.23	2,700	53.60	42.60	26	105.50	9.62
	AsusTek			2357	26.72	5.50	1.16	617	258.00	36.80	NM	289.50	9.66
	Wistron Corp.			3231	5.98	1.02	1.45	1,985	51.50	24.90	107	70.10	8.61
▼LED Display	Everlight Ele.			2393	4.90	1.09	1.29	419	81.80	43.20	89	161.50	16.69
	Epistar Corp.			2448	6.89	0.41	1.30	854	94.90	29.60	221	180	13.77
▲IC Foundry	UMC			2303	1.87	0.36	0.27	12,987	14.85	7.43	100	58.00	7.94
	TSMC			2330	6.24	1.40	1.30	25,910	73.2	44.40	65	97.50	11.73
▲IC Test. Packaging	ASE			2311	3.04	0.67	0.62	6,050	33.30	11.80	182	49.20	10.95
	Siliconware			2325	1.80	0.34	0.49	3,116	38.20	28.00	36	75.80	21.22
▼ICDesign	MediaTek			2454	#28.1	3.03	10.21	1,099	316.50	220.50	44	783	11.24
▼Solar Cell	Gigasolar			3691	34.60	11.97	4.91	33	765	795	-4	906	22.11
	Motech Ind.			6244	12.19	1.80	0.82	380	108	77.40	40	985	8.86
▲Touch Panel		Young Fast		3622	19.40	1.96	4.14	142	196	215	-9	518	10.10
▲LCD Disp.		E Ink		8069	#3.81	2.01	0.65	1,078	58.30	14.60	299	85.60	15.30
▲Mobile Phone			HTC	2498	47.89	18.36	6.46	817	1,300	327	298	1300	27.15
Financial
▲Chang Hwa Com.				2801	#1.28	NA	0.29	6,209	24.95	12.80	95	26.70	19.49
▲Fubon Fin. Holding				2881	#2.36	NA	0.74	8.564	42.00	23.90	76	42.15	17.80
▲Cathay Fin. Holding				2882	#0.45	NA	-0.14	10,154	47.80	36.15	32	94.30	106.22
TSE Index									9.007	4.591	96	9,859	16.40

Note: *1: 10-year high is based on a price spike, not closing price, and is not dividend-adjusted. *2: PER = closing price (Apr. 29, 2011) / 2010 EPS. *3” Figures with # mark signal market’s estimates. *4: Gain in AsusTek is not meaningful due to its capital-reduction move in 2010. * 5: ▲▼: market views of stock direction  

Apple-related stocks put in diverse trends

Apple-concept issues continue to be magnets for cash angling for a mechanism to play an Apple-driven rally. Those micro-caps, under the theme, generally outperformed big ones. Largan lately climbed to an uncharted territory since listing, and was widely reckoned to mimic HTC as the next one to leap over the NTD1,000 bar.

Some are seemingly misplaced in the list, such as Wintek. The touch panel sensor maker got mashed as doubt about order withdrawal from Apple built up. Hon Hai was the elephant in the room last week when it issued disappointing results for 1Q11 which saw its EPS dip to a 9-quarter low. Hon Hai shed a minimal NTD1 to NTD108.50 WoW, losing ground to HTC in TSE ranking of market cap. At the same time, the PC-related gorilla also joined hands with TPK to employ a frugal mentality. Maintaining a cozy EPS in 2010 that slipped a bit to NTD8.01, Hon Hai will mete out NTD1 cash dividend and 5% stock dividend to its investors who blasted the worst case of its dividend policy in 20 years. To minimize impact of rising labor cost in China plants, Hon Hai asked them to live within their means.

Table 3 - Main Apple-concept shares on TSE

Industry	Company Name	TSE Code	2010 EPS (NTD)	1Q11 EPS (NTD)	1Q10 EPS (NTD)	Common Shares (1 mn)	Close (Apr. 29. 2011)	Close (Dec. 31, 2008)	% Chg.	10- Year High (NTD)	PER (Apr. 29, 2011)
EMS	Hon Hai	2317	8.01	1.49	2.10	9,661	108.50	54.20	107	300	13.55
PC Case	Foxconn Tech	2354	6.85	1.12	1.48	112	137	77.2	77	440.50	20.00
Crystal	TXC	3042	4.06	NA	0.75	.296	56.10	20.90	168	87.50	13.82
Flexible Printed Circuits	Career Tech.	6153	3.04	0.92	0.36	324	60.5	8.10	646	74.00	19.90
	Flexium Interconect	6269	4.06	4.06	0.67	145	66.5	13.95	376	67.90	18.38
Camera Lens	Largan	3008	18.62	8.91	5.48	134	909	203.50	346	935	48.82
	Asia Optical	3019	-3.76	-0.97	-1.10	269	55.20	38.50	43	369	NM
	Genius	3406	6.01	1.66	-1.40	88	282.00	24.55	1,048	503	46.92
Touch Panel - Sensor, Glass	Wintek	2384	1.67	0.24	-0.88	1,497	41.8	6.42	551	62.30	25.03
	AUO	2409	-3.04	-1.58	0.80	8,827	22.95	24.70	-7	79.50	NM
	Chimei-Inn.	3481	-0.74	NA	0.87	7,312	29.4	24.25	21	178	NM
	TPK	3673	26.48	NA	NA	224	856	505	69	902	32.33
Connector	Cheng Uei	2392	3.08	NA	0.10	465	57.50	36.2	58	164	18.67
	Unimicron	3037	4.63	0.78	1.01	1,538	47.15	13.60	246	70.00	10.18
PCB	Compeq Mfg.	2313	-0.15	0.28	-0.25	1,191	16.60	4.45	27.	72.00	NM
	Tropod Tech.	3044	10.73	2.75	2.35	473	135.50	32.15	321	181	12.63
ICFoundry	TSMC	2330	6.24	1.40	1.30	25.910	73.2	44.40	64	97.50	11.73
TSE Index							9.007	4.591	96	9,859	16.40

Note: *1: 10-year high is based on a price spike, not closing price, and is not dividend-adjusted. *2: PER = closing price (Apr. 29, 2011) / 2010 EPS.

Buy binge stalls over 9,000

For investors with machismo previously, now might be the time to beware the Siren song of how muscular the US economy is based on a mild US GDP growth of 1.8% in 1Q11, down from 3.1% in preceding quarter. The Fed has been inflating asset prices as part of economic revival measures since at least the mid-1990s. Printing more money is its primary mechanism, trying to make people spend more. So QE is there to goose asset markets. But that will mess up global financial markets at the end.

While top-line multiple in Taiwan corporations is still the key, profitability might be menaced by a maddening inflationary pressure globally, needless to mention by a grossly negligent magnitude of hot money flow. There has been a long-standing mindset in local tech industry: May comes poor, June loses confidence and July unleashes mayhem. Most of tech firms have been unsettled by myriad woes, caused by stronger NTD hurting exporters (a case of TSMC), rising labor cost (Hon Hai) and shortfall of material supply (LCD, LED). Despite so, foreign analysts will keep making their Midas touches on stocks in a rotational mode, given the fact that the market is still fraught with foreign capital.

Odds for the market to form a double-top pattern are not ruled out in the mid-term timeframe, while this week trading will be mired within a maddening tight band between 9,100 and 8,800. Buying interest may emerge momentarily over 9,000, particularly in a backdrop that many industrials had been overbought and overdue for a technical correction.

The three "T"s - timely, well-targeted and temporary - may become new motto of the market right now. Just adopt a risk-off approach to play short-term trade as part of long-term bullish strategy, or lock in profits and walk under the sun.

Good Luck !

Link to the song of Walking in the sun - http://www.youtube.com/watch?v=c_pHy_-HNZ0