The Investment Scientist

Best China investment: Taiwan

Posted on: March 10, 2008

Chinese stocks are hot. Taiwanese stocks are not. That’s about to change.

Taiwan will hold its presidential election on March 22nd. Barring an extraordinary electoral surprise, Ying-jeou Ma, the candidate from the pro-business and less China-averse KMT will win the election. (Currently Ying-jeou Ma is leading with 63% in Taiwan’s political futures market.)

The relationship between China and Taiwan is best seen as a broken marriage. China wants to reconcile the rift on its own terms, and threatens consequences if that should not happen. Taiwan, on the other hand, suffers from multiple personality disorder. One part of it wants an outright divorce. The other wants to stay separated with the option of eventual reconciliation.

For the last eight years, Taiwan has been ruled by a president who favored outright divorce. His government has been responsible for hampering economic interactions between China and Taiwan. As the result, Taiwan’s economy languished exactly when China was making a great leap forward. Taiwanese stock market is basically where it was eight years ago. But many emerging economies have seen their stock markets double or even triple during that time. It’s likely we’ll see a catch-up rally once the dust settles after the election.

Even a surprise win by DPP candidate Frank Hsieh wouldn’t be that bad for Taiwanese stocks. He’s seen as a pragmatist within his party. Rhetorically, he would still want the divorce. Economically however, he wouldn’t mind sleeping with China.

Inclusion, if you want a small piece of China in your retirement investment portfolio, you can still have it cheap with a Taiwan ETF (EWT) or some Taiwan ADRs.

Related symbol: EWT
Disclosure: I own EWT

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1 Response to "Best China investment: Taiwan"

I agree, the opposition won and we should start to see a nice rally. So long as the new government begins talks with China and can manage to open up direct trade, we should be in for some good times. Don’t know if you guys noticed but EWT actually closed above 17 in after-market trading on Thursday.
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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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