Taiwan's Top Stock Investor Sees Tech Frenzy Getting Extreme

(Bloomberg) -- Taiwan’s top investor of 2019 is dialing down her massive bet on technology stocks, warning that expectations for earnings growth are now far too high.

As the island’s shares climb and the Nasdaq hits new highs, Corrina Xiao of Allianz Global Investors is taking some money off the table. She plans to cut tech this quarter to about 60 percent of her portfolio, from 70 percent at the end of March. She’ll boost cash to as high as 20 percent from 9 percent, predicting some of Taiwan’s frothier stocks may fall as much as 30 percent.

With the impact of trade tensions between the U.S. and China receding, stock prices running ahead of fundamentals have become the bigger concern, she said. A dovish Federal Reserve is driving abundant liquidity, helping boost shares of suppliers to the likes of Apple Inc. at a time when prices for memory chips and other components are declining.

“That’s a negative sign," she said Tuesday in Taipei. “The stock market rally is based on high expectations for a better second half of the year, but investors are not paying attention to negative signals.”

Taiwan's Top Stock Investor Sees Tech Frenzy Getting Extreme

Xiao’s move to increase tech holdings ahead of the first quarter paid off after the Allianz Global Investors Taiwan Fund returned 19 percent in the three-month period, compared to 9.4 percent for the Taiex index. That’s the fund’s biggest outperformance versus Taiwan’s benchmark gauge since its 2000 launch. It beat 98 percent of peers over the past year, data compiled by Bloomberg show.

While orders from China’s Huawei Technologies Co. have lifted shares of its Taiwan-based suppliers this year, Xiao is doubtful as to whether the order momentum will continue. She says Huawei “has already ordered more supply than it needs."

Xiao, who manages NT$4.2 billion ($136 million), may start buying more tech stocks in Taiwan after their shares correct. She plans to position for expected new product launches by Apple and others in the second half of the year.

Xiao allocated 7.4 percent of her fund to Taiwan Semiconductor Manufacturing Co. at the end of March, according to its website, making the contract chipmaker her biggest investment. It closed at a record high on Wednesday.

Her next biggest holdings were Unimicron Technology Corp., Merry Electronics Co., Makalot Industrial Co., and Elite Material Co.

Other comments:

  • Funds are flowing into emerging markets, helped by loose U.S. monetary policy which is positive for Taiwan stocks with valuations not overly high
  • Sees earnings growth of Taiwan companies flat from last year
  • Earnings announcements in June, July will give indication of iPhone order strength
  • Risks ahead include Fed turning too dovish, which could indicate deteriorating economic outlook
  • Worse-than-expected Taiwan earnings may trigger correction

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