Time to Invest in Taiwan? Maybe, Maybe Not
It sure feels like Taiwan has been flying under the radar as of late.
Even as Chinese stocks have rebounded over the past several months, Taiwanese issues have been stagnant. Over that time, the iShares FTSE China 25 Index Fund (NYSEARCA:FXI) is up 5% while the iShares MSCI Taiwan Index Fund (NYSEARCA:EWT) is up just 1.2%.
Part of the reason for the lethargy of EWT and the names it tracks is weakness in the technology sector, which accounts for nearly 56% of EWT's weight.
"In the semiconductor business, for example, inventory levels have surged recently, resulting in lower capacity utilization rates, which are generally associated with less pricing power for companies, and posing near-term headwinds," iShares Global Chief Investment Strategist Russ Koesterich said in a note. "Meanwhile, weak global capital expenditures and sagging consumer demand adds pressure on the personal computer market."
Weakness in the semiconductor sub-sector is bad news for EWT because the ETF is home to several chip names. Taiwan Semiconductor (NYSE:TSM) is the fund's largest holding with a weight of over 20% . Inflation has also been a problem.
"For the past three months, headline inflation measures have been persistently above the 2% inflation target set by the central bank, a result of higher fuel, electricity, and food prices," Koesterich said in reducing his rating on Taiwan to Neutral from Overweight.
Bolstering the bear case for Taiwan is a premium market valuation. EWT has a price-to-earnings ratio of 20.5 and a price-to-book ratio of 2.32. That implies Taiwan is far pricier than China and the broader emerging markets universe as measured by EEM.
With the global economy still tepid at best, Taiwan's dependence on exports has been exposed. However, there is another side to the story. The country was recently 16th-best country for business by Forbes. The International Monetary Fund is projecting Taiwanese GDP growth of 3.9% next year, a stark improvement from the 1.05% growth the government expects this year.
Investors looking for Taiwan exposure without making a full commitment as required by EWT should consider the following ETFs.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter