Investors should be "underweight" in Taiwan equities, or hold less of the island's shares than their representation on regional stock benchmarks, Bernard Liu, Raymond Hung, and Adrian Mowat wrote in a note to clients dated yesterday. The strategists left their forecast for the TAIEX index unchanged at 9,000.

The TAIEX index has gained 12 percent this year, compared with a 17 percent advance in the Morgan Stanley Capital International Asia-Pacific Excluding Japan Index.

The Taiwanese measure jumped 7.4 percent last week, its biggest weekly advance since October 2002, to close at 8,690.09.

"Looking ahead, we expect Taiwan to underperform Asia ex Japan," the strategists wrote in the report. "While our base case U.S. macro view remains pro-growth, the key marginal risk lies in the U.S. consumer outlook."

Taiwan's exports account for about half the island's economy and the U.S. market is its largest export market after China. Technology companies comprised more than half of the value of Taiwan's equity market.

JPMorgan's top picks in Taiwan include Far Eastern Textile Ltd., the island's biggest fabrics maker, and Taiwan Cement Corp., the island's biggest maker of the building material, according to the note.

Investors should avoid stocks such as Largan Precision Co., a maker of optical lenses and shutters for digital cameras, and Sunplus Technology Co., a chip designer, it said.