Citing relatively low foreign equity holdings and the sharp plunge in the won, Merrill Lynch said in a recent report that it favored South Korea over Taiwan.
The global investment bank also forecast that Taiwanese exports, which focus on electronics, would plunge 50 percent in the coming months because of the US slowdown. Since the Taiwanese stock market is about 50 percent tech-heavy, Merrill Lynch said it would underweight Taiwan.
Despite its overall bearish outlook on Taiwan, Michael Hartnett, Merrill Lynch’s global emerging markets equity strategist, said it was more important to pick individual companies based on their management, product and balance sheet.
Speaking in a Merrill Lynch live Webcast yesterday, Harnett said: “In 2005, anyone could pick a country ETF [exchange traded fund] outside the US and do pretty well; but going forward, the key is to pick good companies as opposed to countries, and in essence differentiate the boys from the men.”
Even with Merrill Lynch’s country pick of South Korea over Taiwan, the more important thing would be to choose good companies that are going to “gain global market share,” Hartnett said.
INTERNAL DEMAND
With the US economy, Harnett said he believed that Asian economic growth would shift from external to internal demand. Thus, big-name Asian consumer firms topped his list.
Hartnett and his team have an “overweight” rating in telecommunications in Taiwan, Japan, China, India, South Korea and Singapore. They also advised overweighting banks in India, Australia and Hong Kong, but not China and Singapore.
The Merrill Lynch team recommended underweighting technology in most countries, Hartnett said.
The emerging markets expert also recommended the BRIC countries — Brazil, Russia, India and China. Although macroeconomic conditions are deteriorating in these countries, Hartnett said that in terms of scale on each nation’s GDP, “a recession in China simply isn’t the same as a recession in the US.”
BENEFICIARIES
Hence, Hartnett said that if a global recovery were to take shape and investor appetite for equities returns, the BRIC countries would be the first to reap the benefits.
Among the BRIC countries, Harnett favored China over India. One reason is that he expects China to be a major center for deregulation in the coming years, spurring growth in multiple areas.
Chinese equities also currently trade at a discount to developed markets, the country has enormous excess savings as evidenced by its massive current account surplus and Chinese consumers are unconstrained by debt, he said.
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