Taiwan's electronic component sector has been driving the country's market, with some stocks up as ...
Taiwan's electronic component sector has been driving the country's market, with some stocks up as much as 250% in sterling terms for the year to 7 March. The top 10 performing stocks, from the start of the year to 7 March, have returned between 134% and 256% in sterling terms.
Manager of Barings Pacific Growth Trust, Khiem Do, reports the market as a whole has risen 63% since its low after 11 September. Do says: 'Valuations have been high and there has been a rise in orders for electrical components and Taiwan is one of the world's biggest providers of such equipment.
'In addition monetary easing has helped the country's liquidity situation. Furthermore there has been an increasing participation by retail investors who have always played a major role in the trend of the local stock market.'
Christopher Wong, manager of the Solus Eastern Enterprise portfolio, is also invested in the electronic sector.
'This has been the key driver for the Taiwan market over the past four-to-five years,' says Wong. 'One year ago companies were suffering but we still held the sector throughout the business cycle.' Wong says in the wake of the global meltdown in the technology sector many global tech companies have sought to reduce the costs of production. With mergers and consolidation, many have outsourced elements of their production to Taiwanese companies generating new orders and business in the country.
In addition, Wong comments that while many Western tech companies have high levels of borrowing, many of their Taiwanese counterparts are in the black. He says there are a high number of stocks with net cash positions including Taiwan Semi Conductors and Quanta.
At Aegon Asset Management, Jane Martin says the house maintains a neutral position in Taiwan. She says Taiwanese companies are the cream of the crop in the global electronics sector and offer cheap valuations compared to their US counterparts. Martin favours Asustec and Mediatec. 'They are well managed and have great expertise.'
On a broader front, though, Martin says Taiwan is hugely dependent on the US so its medium-term performance will be tied to its recovery.
Added to that Martin says the domestic economy in Taiwan is weak due to lacklustre consumer demand. Many Taiwanese companies are also moving their manufacturing base to China because it is cheaper and there is a huge pool of qualified labour in China which firms can exploit. In general, she says there are very few areas to invest in Taiwan except the electronics/technology sectors. For example, the property and construction sector is suffering from over supply. Despite that, Martin says the Taiwanese are very resourceful and while some sectors have declined, there has been a huge surge in the service sector. In addition, there are some very profitable petrochemical companies which are able to sell to the Chinese because they are on their doorstep. One example is the Formosa Group.
Although political issues have hurt investors before, Martin believes the country is stable. 'We do not think that China will attack Taiwan. Many of the old guard like to rattle the sabre so as not to loose face but in reality closer links are being formed, particularly at a company level.'
Electronics components driving markets.
China threat to Taiwan reduced.
Service sector continues to grow.
Property and construction suffering.
Taiwan dependent on US recovery.
Lacklustre domestic recovery.
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Advisers need to delegate and outsource
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