Global investors and asset allocators increasingly seem to re-assess and re-evaluate the not so Evergrande risk of investing in the PRC People’s republic of China. Taiwan the republic of China equity market is like the island of Formosa, beautiful island rather small compared to CCP controlled investment markets , but TWSE does offer some investment opportunities.
With regards to market narratives, Taiwan could become a quantum computing supply chain story, underpinned by robust economic growth. According to the Bloomberg economic consensus view, GDP for 2024 is expected at 3.1% and 2.6% for 2025. The probability of a Taiwan recession currently stands at 20%. For comparison the probability for a USA recession currently stands at 45% and a China PRC recession is currently estimated at 15%, according to Bloomberg data.
Taiwan's stock market is accessible to foreign investors, and many Taiwanese companies have American Depositary Receipts (ADRs) listed on U.S. exchanges, making it easier for international investors to participate in the market. Including Taiwan equities in an investment portfolio can provide diversification benefits. Diversifying across different regions and sectors can help mitigate risks associated with any single market or industry. Taiwan's geopolitical location, being close to major Asian markets, makes it an important player in the regional economy. Investors may consider this aspect when evaluating potential investment opportunities.
Taiwan is a global leader in the technology sector, particularly in the production of semiconductors and electronic components. Major technology companies like TSMC (Taiwan Semiconductor Manufacturing Company) and Foxconn are based in Taiwan, making it a crucial player in the global supply chain.
Taiwan places a strong emphasis on innovation and research and development (R&D). The ROC government actively supports initiatives to enhance technological advancements and maintain a competitive edge in key industries.
The EEM emerging markets index and ETF currently has 23.25% exposure to the People’s republic of China and 17.33% exposure to India (Bhārat). Taiwan republic of China with 16.42% allocation currently is larger allocation than ROK republic of south Korea. South Korea equities currently comprise 11.95% of the EEM ETF.
New York stock exchange listed country ETF EWT iShares MSCI Taiwan ETF (EWT) has 99% allocation to Taiwan equities and semiconductors sector with 38.2% exposure is the largest economic sector exposure. EWT has a Bloomberg ESG rating of 85.21% and a Morningstar 5 of 5 rating. Total assets stand at USD 3.6 billion.
The Taiwan stock exchange weighted index currently trades at a P/E of 18.3 x and a dividend yield of 3.1%.
The current market in Taipei is far away from the Taiwan stock market bubble of the 1980 and this might be a good thing for the patient and strategic global investor.
The "Taiwan Stock Market Bubble" refers to a period of excessive and speculative growth in the Taiwan stock market that occurred in the late 1980s. The bubble was characterized by a rapid surge in stock prices, driven by speculative trading, excessive valuations, and a euphoric investor sentiment.
The TWSE was established in 1961 and began operating as a stock exchange on 9 February 1962. It is regulated by the Financial Supervisory Commission.
The Taiwan Capitalization Weighted Stock Index (TAIEX) is the stock market index that measures the aggregate performance of listed stocks on TWSE; it is the most prominent and most frequently quoted index of stock performance of Taiwanese public companies.
Taiwan is the 2nd most important stock market in north Asia after South Korea, Taiwan and south Korea together with free Hong Kong and the island state of Singapore were the original four Asian tiger economies.
The question of whether a democratic system with freedom of the press and freedom of expression is necessary not only to create returns for investors, but also protect investors from not so Evergrande is moving more CenterStage this year.
Taiwan has developed into one of the world’s most critical semiconductor manufacturing centres, and the semiconductor industry has become an inseparable component of Taiwan’s economic growth.
Taiwan is roughly the size of Switzerland and has a population of 24 million, yet produces over 60% of the world’s semiconductors and over 90% of the most advanced ones.
TSM Taiwan semiconductor company is the Crown jewel of the Taiwanese equity market and is trading around 117 dollars levels, current valuation of 19.2x and a dividend yield of 2.17%.
Similar to how Samsung Electronics is the Kospi index and Korean equity market, TSM is the largest component stock in the country ETF EWT with 23.8% allocation in the ETF. Long TSM is practically being Long the Taiwan equity market.
The current consensus view on TSMC is buy 94.1% hold 5.9% and sell 0% the 12-month TP(target price) for TSM currently stands at USD 126.47 implying (potential) return of +28% from current levels. Seasoned investors and family office clients might want to recall the old wall street adage, just because it is consensus does not (necessarily) make it wrong. Morningstar and its analyst Phelix Lee with a target price of USD151 is currently the most bullish analyst on the stock price of TSMC.
There are over 20 Taiwanese companies listed as ADR American depository receipts in the U.S stock market.
Taiwan has developed into one of the world’s most critical semiconductor manufacturing centres, and the semiconductor industry has become an inseparable component of Taiwan’s economic growth.
On October 1st 2023 China celebrated its 74th anniversary of the founding of communist part ruled People’s republic of China, superseding the longevity of the world’s first communist Superpower , the USSR Soviet Union. Ukraine was an integral part of the Soviet Union and as Mr. Putin opined never a real country and this in part was justification for the special military operation.
From 1985 to 1990, the Japan Nikkei index rose 129%, while Taiwan's TAIEX index was surging 1,166%. Taiwan's benchmark went from 1,000 to 12,500 between 1987 and 1989, one of the wildest explosions in stock prices ever experienced anywhere at any time.
The island of Taiwan became known as the "Republic of Casino" rather than its formal name: the Republic of China (ROC). During those years many referred to Taiwan as "the place where you can get 80% of what you actually want at a 10% discount."
Since the early 1990s, Taiwan gradually transformed itself from focusing on labour-intensive manufacturing to become one of the world's high-tech hubs. The stock market of Taiwan, on the other hand, has largely lost the interest of foreign investors who shifted to the companies listed in South Korea, Hong Kong and mainland China.
In 2024 and onwards however , Taiwan equities might find renewed interest from global investors.
On July 3, 2023, the TWSE unveiled its new corporate identity on the world stage, with the aim of establishing a trustworthy brand image for investors and stakeholders.
Taiwan equities could outperform in Asia and globally, partly on expectations that the tech industry will recover later this year. The Taiwan dollar is seen staying strong against the greenback as global investment flows to local shares.
While Taiwan offers investment opportunities , geopolitical risks more than valuation will continue to be a factor in foreign investors' assessment of Taiwan.
Rainer Michael Preiss, Partner & Portfolio Strategist at Das Family Office in Singapore
