Greater China Economic report
Comment of the Day

September 09 2010

Commentary by Eoin Treacy

Greater China Economic report

Thanks to a subscriber for this insightful report. Here is a section on Taiwan
Private Consumption - much stronger than expected: Upside surprise came in Taiwan's private consumption in 2Q10, as the growth rate accelerated to 4.4% YoY, from 3.1% in 1Q10. We believe the strong growth in private consumption was driven by three factors: the positive consumer sentiment, the improving labor market and the wealth effect from Taiwan's property market. Taiwan's consumer confidence has reached its highest level in six years. The signing of ECFA could be one of the reasons, as Taiwan's consumer confidence is usually very much affected by cross-strait ties, in our view. The improving labor market is another factor. Taiwan's jobless rate dropped from 5.7% in March to 5.2% in June, and intensive hiring activities were seen, particularly in the manufacturing sectors. We believe manufacturers' capacity expansion activities will continue to benefit the labor market. The upside surprise in private consumption could also have come from the property market in our view, as the buoyed property prices could have created wealth effects, driving up private consumption.

Eoin Treacy's view The Taiwanese Index has been ranging mostly below 8000 for much of the last year but as with other markets, this belies the outperformance of a number of sectors which have a high degree of commonality internationally.

Among these is the Food sector, which broke above the 2007 high in early August and has been consolidating the advance since. A sustained move below 700 would be required to question medium-term upside potential.

Given the increasing ease of travel between mainland China and Taiwan, the Tourist sector continues to outperform. It has posted a step sequence uptrend since June and an MDL stop would need to be triggered, with a sustained move below 150, to question the consistency of the three-month and counting uptrend.

The Auto sector, in common with similar shares globally, has also been a relative outperformer. It is currently testing lateral resistance in the region of 140 and a sustained move below 130 would be required to question potential for an upward break.

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