Features

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

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.

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".

Recommended

I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
Three strong Asian stocks trading at bargain prices
Share tips

Three strong Asian stocks trading at bargain prices

Professional investor Nitin Bajaj of the Fidelity Asian Values investment trust picks three stocks that dominate their industries, earn good returns o…
20 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021