* 'China plays' outshine tech shares on Taiwan bourse
* Trends reflects changes in global manufacturing
* Future of Taiwan tech firms worrisome in 'post-Apple' era
By Faith Hung
TAIPEI, Feb 6 Taiwanese technology stocks are
losing their lustre with foreign investors who are now buying
Taiwanese shares with a significant presence in mainland China
Investors call these stocks "China plays" and think they
have better prospects than the traditional technology shares
that in many ways reflect the past rather than the future.
Taiwanese technology companies rose to prominence making
components for the likes of Apple, Sony and Nokia and rode the
buzz that had consumers standing in long queues to buy the
latest trendy gadgets.
Now that iPhones and iPads are not so dominant and
competition is intensifying in the global smartphone and tablet
market, investors think China plays are a better bet.
By market capitalisation, China plays rose to 40 percent of
the Taiwanese bourse as of the end of 2013, the highest in 13
years, according to data from JP Morgan, which said this would
keep rising. Tech shares, by contrast, fell to below 50
percent of the market for the first time in nine years.
China plays have a big presence in China and are suppliers
for a different group of companies such as Tesla Motors
, Nike Inc and Lululemon, a maker of
Yoga clothing. Sun Art Retail Group, which has
outgunned Wal-Mart in China, is partially controlled by Taiwan's
"Those glory days when tech shares dominated the Taiwan
market are gone," said James Yeh, manager of JPMorgan Asset
Management's "Taiwan Gold Brick Fund." His fund generated a 34
percent return in 2013, about triple the main index's 12
"These companies have been around for 30-50 years," said
Ryan Shen, a fund manager at Capital Investment Trust Corp,
referring to China plays, on which he is bullish.
"Most of their rivals had been kicked out of the market
during the process, allowing them to develop high-end products
not easy to be replaced," he said.
'WOW' FACTOR STRUGGLES
Driving the change is investor concern that companies such
as Apple and Samsung Electronics now
struggle to launch products with a "wow" factor and face fierce
competition from Chinese rivals.
"Apple's innovation has got to a point where not that much
new can be done any more. After they launch the iPhone 6 this
year, their high-end models demand will slow down," said Yeh.
"Samsung is in a similar tough situation. There is
increasing concern its earnings growth has peaked out," he said.
"Samsung has nothing new and eye-catching to show consumers this
year, neither will Apple in 2015."
Since early in 2013, shares of Hon Hai Precision
and TSMC , the two most recognised "Apple
plays", rose 4 percent and 9.3 percent, respectively, lagging
the broader market's 12.8 percent gain.
Further weighing on such Taiwanese suppliers is the fact
that Apple has added Chinese companies including Shenzhen O-Film
Tech Co and Goertek to its supply chain
in order to maintain stability.
By comparison, Eclat Textile Corp has surged 208
percent while Tesla Motor supplier BizLink Holding Inc
has soared 266 percent.
Eclat, which counts Nike, Lululemon and Under Armour
as major customers, has seen foreign investors accumulate 90
million of its shares in the last three years, up from 3 million
shares previously, said Capital's Shen.
Other China plays whose shares have surged over the past
year are Hota Industrial Manufacturing Co, another
Tesla supplier, bicycle maker Merida and convenience
chain store Family Mart.
China plays have performed so well, however, that there is
now some concern that their valuations have gotten too far ahead
of earnings, said Alex Wang, a fund manager at Fuh Hwa Asset
"What is Taiwan going to do in the post-Apple era? Chinese
companies are catching up. Their scale is much bigger and
clients are much bigger," said JPMorgan's Yeh. "Look at all of
the capacity expansion that Hon Hai has done ... The combination
of these two makes us worried."