Taiwanese stocks rallied Monday, reflecting the landslide weekend election victory of Kuomintang party (KMT) presidential candidate Ma Ying-jeou, who ended eight years of Democratic Progressive Party Rule (Chen Shui-bian).
Why is the new government significant for investors?
The January 12th legislative elections gave the nationalist Kuomintang part nearly 72% of votes. With Ma’s election now, the KMT will have the unique distinction of having an absolute majority in the executive and legislative wings in
Taiwan.
While the previous regime was responsible for hampering economic interactions between
Taiwan and
China, Ma Ying-jeou is pro-business with a more favorable view of
China.
What's the upside for investors?
The prospect of Ma’s election already brought more hope and new money to
Taiwan’s markets. Taiwanese funds have attracted over $600 million of new money (year to date) compared to over $4 billions of outflows from Chinese funds.
Taiwan’s stock market is still lower now than it was in February of 2000. It wouldn’t be a stretch to expect a bounce from improved relationships with
China and from lower valuations after trailing most of the red hot Asian markets over the past decade.
The iShares MSCI Taiwan Index ETF (Ticker: EWT) has already responded to the recent developments and is trading 20% above its February 2008 low.
Some view
Taiwan as a peripheral market for those who are trying to invest in the
China story at a discount, or those who were too late to profit from the
China boom.
Valuations:
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Emerging Markets – EEM
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China - FXI
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Taiwan - EWT
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U. S. - SPY
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P/E
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14.15
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18.87
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11.25
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13.62
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3-Year Trailing Return
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32.38%
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49.15%
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10.33%
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8.51%
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A closer look at iShares MSCI Taiwan Index ETF (EWT):
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iShares MSCI Taiwan Index ETF
Ticker: EWT
Expense Ratio: 0.68%
Strategy Box Average: 0.34%
Fund Category Average: 0.61%
Inception: 06-20-2000
Holdings: 126
Top Sectors:
Hardware (Technology): 47%
Financials: 15%
Industrial Materials: 14%
Security Selection: Passive (MSCI Taiwan)
Security Weighting: Market Cap
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What's the downside for investors?
Single country ETFs by their concentrated nature almost always display more volatility than broad market index ETFs. For more diversified exposure to Taiwan, also see the Vanguard MSCI Pacific ETF (Ticker: VPL). Since EWT is a bet on improved relations between China and Taiwan, the main issue for EWT will be if China accepts the new administration and to what extent the two countries will co-operate.
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