In a recent interview, Derek Lin of Uni-President Asset Management Corp. expressed concerns over Taiwan Semiconductor Manufacturing Co. (TSMC). Lin, whose UPAMC Great China Fund ranks first among 144 stock mutual funds investing mainly in the Greater China region, believes that TSMC's softening return on equity (ROE) is even more alarming than its exposure to geopolitical risks. He suggests that TSMC's overseas expansion will lead to higher costs and lower efficiency, denting the company's ROE. TSMC reported a drop in gross margin in the first quarter and warned of challenges ahead, including semiconductor cyclicality and its overseas expansion.
Lin considered buying more TSMC shares when the stock price dropped earlier this year but ultimately invested in electronic paper maker E Ink Holdings instead. He sees value in E Ink's dominant market position and growth outlook due to the increasing adoption of electronic labels.
Lin is positive on semiconductors tied to high-performance computing and AI, especially companies specializing in algorithms. He believes that demand for chips used in consumer electronics will recover later this year but that future growth momentum is unclear.
Lin's fund has added more electric vehicle and solar stocks, but he is becoming less keen on EV shares due to US restrictions for Chinese suppliers. He likes Contemporary Amperex Technology Co. due to its competitiveness.
Lin is positive on Beijing Oriental Yuhong Waterproof Technology Co. due to its leadership position and continuing expansion amid a property slump. He sold financials and consumer shares due to soft demand.
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