Fading China and Tech Concerns Result in Taiwan Becoming Asia’s Hottest Investment Destination

Taiwan has caught the fancy of global investors.

Making Taiwan the most popular destination for investors among nine Asian markets tracked by Bloomberg and taking inflows for the year to $11.6 billion, overseas funds poured $5.4 billion into the island’s equities last month. As a result the benchmark stock gauge and the currency reached one-year highs.

Relief that the new political era under President Tsai Ing-wen hasn’t led to a conspicuous deterioration in ties with China and the imminent release of Apple Inc.’s iPhone 7 potentially boosting profits at Taiwan suppliers have also fuelled the gains. As Asia’s second-highest dividend yield and below-average valuations lure investors, Prudential Financial Inc.’s local unit sees room for further gains while a stronger currency may crimp overseas earnings for exporters.

Hsienwen Yeh, head of greater China investment at Prudential Financial Securities Investment Trust Enterprise in Taipei said: “Taiwan is especially strong because everyone knows the new iPhone will be launched in September or October, and production begins in the second quarter.”

Amid concerns that the new president would strain ties with China and slower smartphone sales growth would hit the local supply chain, global funds rushed for the exit from the island in May and the increased investor enthusiasm toward the island’s stocks is a reversal from that period. In her inaugural speech, Tsai had said that her country will maintain peace and dialogue and thus avoided provoking China directly.

Noting the fifth-biggest gain among 94 global benchmark indexes, the Taiex index has rallied 15 percent on a dollar basis since Tsai assumed the presidency on May 20. Additionally, following the currencies of Japan and South Korea in terms of gains, the Taiwan dollar has strengthened 3.3 percent.

The advance has been driven by technology companies. After forecasting third-quarter sales that beat estimates as the new iPhone’s release neared, Taiwan Semiconductor Manufacturing Co. climbed to a record this week. It is the island’s largest listed company and a major Apple supplier. After reporting sales that fell less than projected in the April-June period, Apple added to positive sentiment.

Stevie Chou, Taipei-based head of equities at Manulife Asset Management (Taiwan) said that after reducing exposure in the first half “I will increase allocation to some names related to iPhone 7 production.”

“The third quarter is a hot season for information technology products,” Chou added.

However the island’s lackluster economy could limit the index’s rally, said Chou sounding a word of caution. After three straight quarters of contraction, there was just a 0.69 percent expansion on a yearly basis in the gross domestic product from April through June. Exports, which have shrunk for 17 months in a row, have also been threatened by a stronger Taiwan dollar.

Amid receding returns around the world and decreasing odds of a Federal Reserve interest-rate increase this year, as global investors hunt for high yields, they have overlooked these challenges.

While Taiwan’s 16.2 price-to-earnings ratio is still less than its five-year average of 17.4, the island’s 4.03 percent dividend yield is Asia’s highest after Australia.

(Adapted from Bloomberg)

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