Go with big guys when buying Asia tech shares

TAIPEI, TAIWAN: The faint-hearted might stay away from buying Asian technology shares after a sizzling rally stretched valuations, but some good bets still remain for risk takers on hopes of a strong rebound in consumer demand.

Factories are cranking up production again as retailers restock bare shelves and electronics makers resume buying components after drawing down inventories sharply.

Companies that hold leading positions in their sectors are especially good picks as they can grow further by squeezing out smaller rivals or falling back on their massive cash reserves.

Asia is home to some of biggest names such as No 1. memory chipmaker and LCD maker Samsung Electronics, PC vendor Acer, consumer electronics giant Sony Corp, Indian outsourcer Infosys Technology and Taiwanese contract chip makers TSMC and UMC.

Few analysts believe the recent surge, which has propelled Asian heavyweights, could be setting itself up for another of the cyclical industry's notorious bubbles.

"In a bubble, there is frenzied buying without any inkling of fear," said Robyn Hsu, a fund manager who handles T$11 billion ($336 million) at Taipei-based Capital Investment Trust.

"This time, there is still widespread fear, and there're still many people who are choosing not to take the plunge into the equities market, which leads me to believe that this is actually a sustainable rally."

MSCI's index of information technology stocks in Asia Pacific region outside Japan is up 47 percent this year, outpacing a 27 percent rise in the broader market index. The tech sector index is up some 60 percent since early March, slightly outperforming the market.

The sector's forward price to earnings ratio is also way above the historical average, clocking in at an average of 26.6 this month compared to a 14-year running average of 16.3, according to data from Thomson Reuters.

However, most analysts say the steep rise is due to a sudden drop in company earnings forecasts last year in the economic crisis, even as the figures suggest share prices are currently overvalued.

"Let's say I won't be short selling the market right now," said Calvin Huang, an analyst at Daiwa Institute of Research. "Momentum is really against those who're short selling right now, even if some indicators suggest otherwise."

S.Korea, Taiwan seen higher?

Many analysts say companies such as Samsung Electronics and rival Hynix, and panelmaker LG Display in South Korea are attractive buys as these leaders could expand market share further.

China's $600 billion in stimulus spending is mainly responsible for driving a recovery in Asia's tech sector and especially in Taiwan, as China moulds itself into an electronics consumer and not just an exporter.

Taiwan's top chip foundries, display and PC makers, reeling from slumping orders in the United States and Europe, have benefitted from billions of dollars in orders from China to meet rural consumer demand for PCs, cellphones and flat-screen TVs since earlier this year.

The benchmark TAIEX share index has surged nearly 50 percent this year, making it the world's best performing major market open to foreign investors.

"Many new technologies are being developed in Taiwan right now, and that's going to give them a headstart over their competitors" said Michael On, who manages $60 million at Beyond Asset Management in Taipei.

"For example, touchscreen technologies are big in Taiwan, and these companies will be very attractive buys if the technology continue to grow the way it is now."

Wintek and Young Fast Optoelectronics are two of Taiwan's top touchscreen makers.

Wary of Japan

However, optimism over the technology sector doesn't extend to Japan as analysts cite companies' higher capital spending and premium branding, which may not sit well with customers in these lean times.

Many Japanese electronic makers expect earnings to pick up later this year as they press forward with restructuring, but analysts say the outlook is already priced in the market.

"Only when companies start reporting healthy earnings and convince us they will be posting even better figures next year, the Nikkei will go above 10,000 and technology shares move further up," said Misushige Akino, chief fund manager at Ichiyoshi Investment Management.

"At the moment, we're just not there yet."

Big names such as Sony and Sharp have outperformed the Nikkei's 4 percent rise this year, even as they are hit by a stronger yen and weak consumer demand.