Keep an eye on Taiwan

Taiwanese stocks have lagged their global counterparts for the past few years, partly because "its potential as a gateway to China has been curtailed amid a government drive to assert Taiwan's independence from mainland China", says David Fuller on Fullermoney.com.

But that looks set to change. The pro-China opposition Kuomintang Party's landslide makes the KMT's Ma Ying-Jeou the favourite for the presidential election on 22 March, and his victory would mean that the economy would be opened to China, with "dramatic consequences", says Peter Sutton of CLSA.

Easing restrictions on investment by both Taiwanese and Chinese firms as well as on visas for Chinese visiting Taiwan, and allowing direct flights between Chinese and Taiwanese cities, should set off a "massive economic boom". There is scope for property, airline and banking and insurance stocks to climb by 50%-75% if the KMT wins in March.

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But in the interim the outlook is clouded by the fact that technology firms comprise around 70% of listed earnings, and are largely dependent on final demand in developed markets. Citigroup has calculated that a 1% reduction in the US growth rate knocks 0.8% off Taiwan's.

So while Taiwan looks cheap on a 2008 yield of 4.7% and a p/e of 12, given the global jitters, this may be one to keep an eye on rather than buy now.