Taiwan's high-tech industry, and its stocks, are expected to bounce back quickly from last month's earthquake.
"I do not expect a significant long-term impact," said Binu George, principal and international equity strategist at Barclays Global Investors Inc., San Francisco. "All the large companies have come out with statements saying that things are not too bad."
Taiwan Semi-Conductor Manufacturing Co., the largest semiconductor maker in Taiwan, has said it expects to be back to within 80% to 90% of full production in about two weeks.
The company's American depository receipts, listed on the New York Stock Exchange, went from $30.50 the day before the Sept. 21 earthquake to $29.50 at closing Sept. 30. The lowest price, Mr. George said, was $29.
"Sales have been lost and there's not much manufacturing . . . but no buildings were devastated," said Mr. George. He was referring specifically to the Hsinchu Industrial Park in Taipei, where most of the country's large high-tech companies are located. He said the damage there was not very much.
The island nation was hit with an 7.6 magnitude earthquake. By last week, power had been restored to Hsinchu, although there were still blackouts in a few areas of Taipei.
Taiwan's high-tech companies "will recover their lost market share and exports fairly quickly," said Douglas Dooley, managing director and emerging markets portfolio manager at J.P. Morgan Investment Management Inc., New York.
"One of the things we were pleased about from an investor perspective is how quickly the companies came back," he added, and began testing their equipment to start manufacturing again.
He expects that TSMC will lose about 10% -- or about $100 million -- of its expected profits for 1999. "We think that's recoverable next year," he said.
UMC to lose sales
He predicts that United Microelectronics Corp., the second-largest producer, will lose about 6% of its projected sales in 1999. "They're a little bit more diversified than TSMC, which is almost exclusively a semiconductor manufacturer," he said. UMC's stock closed at $78.50 (Taiwan dollars) Sept. 20 and T$74 Sept. 30.
"Long term the earthquake hasn't affected our position on Taiwan," said Nandu Narayanan, portfolio manager at Trident Investment Management LLC, New York.
He hasn't been a fan of the country's high-tech industry for some time, saying the stocks are overvalued. He still believes that.
"It's very hard to make a case for these stocks at these levels," he said. He also thinks that, "globally, these stocks have been overvalued."
2 U.S. firms could be hurt
Mr. Narayanan believes the stock of two U.S. high-tech companies -- Dell Computer Corp., Round Rock, Texas, and Advanced Micro Devices Inc., Sunnyvale, Calif. -- could be hurt short term: Dell, because it keeps low inventories and is very dependent on Taiwanese manufacturers; AMD because "much of its new processor is made in Taiwan."
"If some of their suppliers are knocked out for a few weeks, they could be seriously affected," he said.
Dell closed at 487/8 Sept. 20 and closed at 413/16 Sept. 30. AMD closed at 195/16 Sept. 20 and 17 3/16 Sept. 30.
He also thinks Taiwanese insurers -- as well as banks that make mortgage loans -- will be hurt. "Their collateral has been destroyed," Mr. Narayanan said.
In terms of the overall high-tech industry, "my belief is things will return to normal fairly quickly, only 1999 profits will be hurt," said Christian Dangerfield, who is head of Asian investments at AIB Govett Asset Management Ltd., London.
He pointed out that while some high-technology stocks, including TSMC, suffered losses after the Taiwan Stock Exchange reopened Sept. 27, the declines could bring "some bargain-hunting opportunities."
"An earthquake like this could represent a buying opportunity."
But a slowdown in semiconductor manufacturing could have a delayed effect on other kinds of high-tech companies.
Robert Rezaee, an analyst with Montgomery Asset Management, San Francisco, thinks that because of the earthquake, by November there may be a shortage of parts for motherboards, which are used in the production of personal computers.
"At this point, no one is saying we have a problem. It won't become evident until November," he said.
If there's a shortage, "there will be a price increase for components and companies could have problems meeting the demand for Christmas."
"I think this could definitely impact the PC stocks," in both the United States and Taiwan, he said. However,he added, "it's a short-term thing."
However, he expects the larger companies, which the Taiwanese companies regard as more important, to suffer less than the second-tier firms.
The Taiwanese companies "are not going to hurt their relationships with the leaders," he said.
The experts point to another factor that could bring a big boost to Taiwan's stocks overall, including high-tech stocks: Next February, Taiwan's weighting in the Morgan Stanley Capital International's Emerging Markets Free index will almost double to 19%
"Many index fund managers and active managers compare themselves to this benchmark," said BGI's Mr. George. "This will cause increased buying of Taiwan stocks."
"Taiwan will become the largest Asian market in the benchmark outside Japan," said Mr. Dangerfield. "Most foreign institutions are underweighted in Taiwan now and will be more underweighted with the changes.
'"There will be a demand for Taiwanese equities," he said.
Increased EMF weighting
Mr. Rezaee agrees that Taiwan's increased weighting in the EMF index will help its stocks overall, including the high-tech stocks.
Moreover, if the country shows strong recovery from the earthquake's effects, "the market will rebound sharply if the underlying fundamentals (are strong)," Mr. Dangerfield said.
The one question that could lead to long-term negative market impact: Will semiconductor companies such as Intel Corp., Motorola Inc. and Toshiba Corp. decide it's unwise to have the majority of their chips manufactured in Taiwan and therefore decide to spread the manufacturing around to other countries to lessen the effects of a single natural disaster?
"Customers may look to diversify the outsourcing of their products," he said.
But he thinks the Taiwanese companies can address the problem themselves by moving more of their manufacturing facilities to mainland China.
Mr. Dooley doesn't think that this is going to be a problem, pointing out that Japan, which has sought to increase its high-tech manufacturing, also is prone to earthquakes.
According to Mr. Rezaee, "What it will do over time is force companies to be more earthquake prepared. Longer term, Taiwan will continue to keep itself a strong player in the semiconductor market."
He expects the stock of Taiwan's China Steel Co., of which J.P. Morgan is a large holder, to benefit from both the added weight in the EMF index and the earthquake.
"It will now play a major part in (Taiwan's) recovery from the earthquake," he said.