Taiwan's exports surged 3.6% in August

Here's why it disappointed analysts.

According to Bank of America Merrill Lynch, Taiwan exports rose to +3.6% yoy in August after growing +1.6% yoy in July, slightly below market and BofAML's more conservative forecast at 3.9% yoy. 

Here's more:

Compared to July, both tech and non-tech sectors improved by rising 3.8% yoy and 3.5% yoy, respectively. Import growth for August continued to contract but progressed by falling 1.2%, after dropping 7.6% in July. So far, in Jan-Aug, exports growth rose +2.5% yoy while imports growth dropped 0.9% yoy.

Despite tentative signs of trade recovery across Asia, with both China and Korea exports beating estimates at 7.2% and 7.7% in August respectively, the weaker-than-expected Taiwan reading today suggests that the near-term prospects for Taiwan exports may not be as bright as its neighbor exporters.

In our view, the traditional peak season effects seen in 2H of the year, coupled with the potential release of new handheld devices or models may help local suppliers raise their shipments in the near term.

In particular, as worst of China's economic slowdown has subsided while the drag from European fiscal austerity is easing alongside a pickup in US domestic demand, 4Q13 demand looks to be slightly above trend on restocking for China Golden Week as well as Thanksgiving Christmas holidays in US/ EU.

However, the high comparison base of last year (average of US$26.1bn in Sept-Dec 2012) suggests that the yoy growth for the next four months will likely stay close to low single-digit of around 1-2% yoy even if exports rise to an average of US$26.5bn in Sept-Dec 2013 (vs. US$25.6bn in August; an average of US$25.2bn in Jan-Aug 2013 or an average of US$25.1bn in 2012).

In addition, we remain concerned as HTC, the leading Taiwanese smartphone brand continues to suffer from overbuilding capacity, bad supply-chain management and declining sales/ market share globally. We retain our export forecast range at 1-4% for 2013.