Taiwan bucks east Asia's regional trend

Taiwan's economy is bucking the regional slowdown, growing the fastest pace since early 2018 and in stark contrast to weakness elsewhere in east Asia.

Aerial panorama over Downtown Taipei at night
Beijing regards Taiwan as a renegade province

Getty Images

Taiwan is bucking the Asian slowdown. The island's economy grew by 2.9% year-on-year in the third quarter, say Chinmei Sung and Samson Ellis on Bloomberg. That is the fastest pace since early 2018 and stands in "stark contrast" to weakness elsewhere in east Asia: South Korea is on course for its "weakest growth since the global financial crisis" and Japan has slowed sharply. Hong Kong fell into recession in the third quarter.

Advertisement - Article continues below

A small, self-governing island that Beijing regards as a renegade province, Taiwan plays an outsize role in emerging Asia. The country's stocks make up 16.4% of the MSCI Emerging Markets Asia index, third behind mainland China and South Korea.

The Taiex stock index is up 21% so far this year and looks on course for its "best year in a decade", says Cindy Wang on Bloomberg. "Foreign investors have poured $6.6bn into Taiwan-listed equities" so far this year. That makes it second only to India as an Asian investment destination.

Wait and see

Taiwan's economy is the beneficiary of "favourable structural and cyclical trends", says Vincent Tsui for Gavekal Research. There are signs that Asia's export decline is finally bottoming out. That means an upturn for the island's all-important electronics industry could be around the corner.

Bears used to predict that the local manufacturing base would be "hollowed out" by relocation to lower cost destinations in Asia, but rising wages in China have enabled local semiconductor manufacturers to maintain their competitive edge. Taiwanese stocks look poised to outperform Asian peers.

A 4% dividend yield makes Taiwan one of the most attractive choices in Asia for income seekers. Yet value investors may baulk at the market's rich valuation. On a cyclically adjusted price/earnings yield of 21.1, Taiwan is notably more expensive than other markets in the region. Tsui says that investors could look to buy in on market dips.

China's communists regard the Taiwanese president, Tsai Ing-wen, and her pro-independence supporters as "beyond the pale", so cross-strait relations could be in for a bumpy ride if she is re-elected next year. "Bellicose rhetoric" and economic countermeasures would cause market jitters, but investors could find "an attractive buying opportunity".




Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020