Hsu's View on Taiwan
06/16/2006 12:00 am EST
With his China Strategy Letter, advisor Robert Hsu has become one of the advisory world’s leading authorities on investing in that region. Here, he looks at Taiwan, where he believes a reduction in political tension could lead to "exciting opportunities."
"While the political tensions between Taiwan and China are not yet resolved, there are some important signs that we're getting closer and that Taiwan's economy could take off in the next few years. Taiwan's anti-China President, Chen Sui-bien, is losing his influence; he currently has an approval rating of 6%, making him the most unpopular elected head of state in the world. I expect Harvard-trained, pro-China opposition party chairman Ma Yin-jo to prevail in the 2008 presidential election.
"Since Chen rose to power in 2000, the Taiwanese government has gone out of its way to cut itself off from China's economic emergence. That did not stop smart Taiwanese entrepreneurs and investors from participating in the China Miracle, though. Over one million Taiwanese, half of them in Shanghai, now spend more time in Mainland China than Taiwan. It is estimated that Taiwanese businesses invested over $200 billion in China during the past 20 years, more than any other country in the world.
"Taiwanese entrepreneurs and businesses have been on the leading edge of the China Miracle. Businesses controlled by Taiwanese entrepreneurs account for nearly 20% of China's total exports. Because these entrepreneurs have capital and expertise, they had a head start in entering and profiting from the China Miracle, and many amassed immense fortunes as a result.
"While many Taiwanese companies are growing their businesses in China, because of the political risk, Taiwan stocks are cheaper than at any time in the past. They are trading at a trailing P/E of only 11, which is 35% cheaper than the historic average of 17 during the 1990s. Considering the decreased risk, I think it's time to buy Taiwanese stocks on pullbacks. I believe that there will be a tremendous ‘peace dividend’ as the relationship between Taiwan and China gradually improves.
"The best way for us to profit is the iShares MSCI Taiwan Index (EWT NYSE). This exchange traded fund lets us play the whole Taiwan market at once. EWT pulled back in the recent selling, along with other emerging market stocks, and is now trading at a cheap 10 times trailing 12-month earnings. Buy EWT under $14 for expected gains of at least 50% as we head toward the 2008 Olympics."