Taiwan Strategy:Foreign inflow streak continues

Tech continues to outperform, NT$ continues to appreciate

We caution more downside risk to the market short-term from current levelsas: (1) we are at the top of the market trading range, coming off 5 months in arow of foreign buying, (2) June-November is the historically the weakestperiod for TAIEX performance, and (3) a strong NT$ is putting 2017 earningsgrowth at risk (12%+ consensus EPS growth has downside risk). Reason tonot be alarmed (which should limit our expected market pullback) –reasonable valuations at 14x 2017E consensus (vs 7-year average of 16x)and positive outlook for both the semiconductor and iPhone cycle in 2017/18.

The TAIEX was up again in May (+1.7%) with tech outperforming and the NT$appreciating (+7% YTD) every month YTD.