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You can’t flip through the business section of any major newspaper in America or watch CNBC for more than ten minutes without China being mentioned.
For better or worse, the global financial news with relation to Asia is heavily skewed toward China.
What the pundits often forget to mention is the fact that Beijing has none other than Taiwan to thank for turning the mainland into a global technology leader and economic powerhouse.
In fact, more than 60% of Chinese technology exports are made by Taiwanese companies. What that means is that most of the technology profits from anything stamped with “Made in China” are probably going to Taiwan.
Today, I want to talk to you about Taiwan and why I believe “the other China” may be the next emerging market star. Let’s start with …
A Brief History of Taiwan
Taiwan, also known as the Republic of China, has been independent since the end of a civil war with China in 1949. A majority of the one million Chang Kai Shek supporters who fled to Taiwan were the Chinese who had the most to lose under communism — the merchants, doctors, business owners, and well-educated professionals.
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| One million of Chang Kai Shek’s supporters fled to Taiwan after civil war in China. |
Those entrepreneurial Chinese brought their work ethic, drive, skills, and business acumen that transformed Taiwan from an underdeveloped agricultural island to an economic powerhouse that is one of the largest producers of high tech goods on earth.
Today, Taiwan is the world’s largest manufacturer of computer chips and is a leading producer of LCD panels, DRAM computer memory, networking equipment, personal computers, and consumer electronics.
Taiwan has its own high tech metropolis, Hsinchu City, which rivals Silicon Valley. The capital city, Taipei, boasts the world’s tallest building, the 101 Building, and is one of my very favorite cities to visit in all of Asia.
On the negative side, there are more than 700 Chinese missiles aimed at the island. Here’s why …
The relationship between China and Taiwan has been described as a broken marriage. Beijing wants to reconcile the two countries under one ruling roof while Taiwan wants to stay separated and independent.
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For the last eight years, Taiwan has been ruled by a president who favored outright divorce, which is why the Chinese government has threatened military action against Taiwan should it seek a formal divorce.
As a result, the Chinese legislature passed an anti-secession law in 2007 authorizing military action against Taiwan if it moves toward independence.
But most, if not all, of that tension is about to disappear …
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| Taiwan just elected a new president, Ma Ying-jeou, and I think he’ll be good for stocks. |
Recent Election Should Jump-Start
The Taiwanese Economy
Taiwan just elected a new president, Ma Ying-jeou. He is a pro-business leader who will push for closer ties with mainland China and defuse tensions between the two countries.
For instance, Ma, a Harvard-educated lawyer, has promised to revitalize the island’s economy with closer economic and transportation ties to booming mainland China.
Right now there are no direct flights between Taiwan and mainland China (except on holidays). Even though Shanghai is right across the Straights of Taiwan, businessmen have to fly to Hong Kong first and then catch a connection to Chinese cities!
The election of pro-business Ma may create the biggest peace dividend our world has ever seen and reward savvy investors who jump on board early.
Plus, if politics weren’t enough to build upside market momentum, consider the fact that …
Taiwan Has One of the World’s Most
Undervalued Stock Markets
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| Taipei’s 101 building is the tallest in the world. |
Taiwanese companies trade for an average of 16 times earnings, a bargain compared to 19 times for Hong Kong and 22 times for Chinese stocks listed on foreign markets, such as the U.S.
In fact, the Taiwan stock market is essentially where it was eight years ago while the Chinese market has skyrocketed during that time.
Does investing in Taiwan make sense to you? If so, there are three ways to include it in your portfolio:
1) Taiwan iShares ETF (EWT): This ETF tracks its namesake index, a capitalization-weighted bogey of about 110 holdings that represent nearly 85% of the Taiwanese market. EWT’s 126-stock portfolio is heavy on information technology companies (55%) like Taiwan Semiconductor, Hon Hai Precision Industry, and LCD screenmaker AU Optronics.
2) Taiwan Closed-end Funds: There are two closed-end funds that are Taiwan focused: The Taiwan Fund (TWN) and Taiwan Greater China Fund (TFC).
3) Individual Taiwan stocks listed in the U.S.: Currently, there are eight Taiwanese stocks that trade right here on the New York Stock Exchange and the NASDAQ. They are …
Advanced Semiconductor Engineering (ASX)
My Asia Stock Alert subscribers have owned several of these companies in the past with spectacular results.
And while I’m not recommending any right now, that could change very soon, especially given Taiwan’s improved political landscape and its stocks’ bargain basement valuations.
Best wishes,
Tony
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