As global demand for electrical equipment such as transformers and distribution panels surges, Taiwan’s heavy electrical industry has transitioned from a domestically oriented traditional sector to a burgeoning export industry serving the global market. With staggering power consumption from AI data centers and an anticipated 5-year annual growth rate of 1.8% in the United States’ power demand (currently under 1%), projected to reach 7.5% of total U.S. electricity consumption by 2023, tripling its current share, Taiwan, once known as the manufacturing export hub, is well-positioned to meet the demand for various types of electrical equipment, ranging from sub-69kv transmission and distribution equipment to large-scale transformers for power plants exceeding 69kv. Riding on the wave of AI, companies in this sector not only have optimistic operational prospects for the coming years but also stand to be perceived by the market as “AI technology stocks,” potentially undergoing a re-rating process that could further boost their stock prices.
Managerial Perspective: Bullish Factors for the Market:
- Federal Reserve Interest Rate Cut: With a clear trend of slowing inflation and a high probability of an economic soft landing, any initiation of interest rate cuts by the Federal Reserve should be viewed as bullish.
- Earnings Revision Upward for Corporations: Heavyweight technology companies are set to hold 1Q earnings calls, reigniting growth momentum as inventory destocking nears completion.
- AI Leading New Trends: Introduction of new server platforms and increased demand for AI chips, coupled with increased corporate investment in AI, heralds a new bull market phase for tech stocks.
Bearish Factors for the Market:
- Geopolitical Risks: The 2024 U.S. presidential election and escalating geopolitical risks in the Middle East may pose threats to the global financial system.
- Uncertainty in Timing of Interest Rate Cuts: Expectations for interest rate cuts are high, but the timing and magnitude remain uncertain, amplifying market volatility.
- Pressure from Bullish Corrections: Valuations in AI-related sectors are not necessarily cheap after the bull run, with hot money inflows leading to chip chaos and increased stock price volatility.
Delay in Interest Rate Reduction Schedule Isn’t Necessarily Detrimental
Despite the renewed noise surrounding the Federal Reserve’s postponement of interest rate cuts, the Taiwan Stock Exchange briefly dipped below the 20,000-point mark amid selling pressure. However, those selling stocks may have overlooked a crucial point: the vibrant U.S. job market and robust retail sales indicate the continued resilience of the U.S. economy. The narrative of an “economic hard landing” since the beginning of the year is gradually fading, with the view of “no economic landing” becoming more prevalent. At this stage, interest rate cuts are not the sole stimulant for financial markets. In fact, the reasons behind interest rate cuts are more important than the timing. As long as the Federal Reserve is not cutting rates to rescue the economy from recession, the impact on financial markets is minimal, and there are no adverse effects on the Taiwan Stock Exchange. We believe that the revival of economic momentum and unrelenting AI demand are key to sustaining the bullish trend in Taiwan’s stock market. With Q1 earnings being gradually disclosed, some benchmark companies still demonstrate rapid growth in operational performance, and the overall industry trend remains unchanged. Therefore, Q1 earnings will be the market’s focal point, and as long as the results are not too dismal, it is still an opportune time to enter the market amidst short-term fluctuations.终止生成