The Little Market That Could

Returns have exceeded those from China since Tsai's election chilled relations.
Billy H.C. Kwok/Bloomberg

It wasn't supposed to be this way.

China's hostile reaction to the election of Tsai Ing-wen as Taiwan's president should have hurt the country, economically and politically.

While her predecessor, Ma Ying-jeou, was rewarded by Beijing for his pro-China policies through trade and transport deals, investments, hordes of tourists and a historic handshake, Tsai was to be given the cold shoulder over her refusal to recognize the One China policy.

Crossing the Threshold

Taiwan's Taiex index broke through 10,000 to close higher than at any point during the term of former president Ma Ying-jeou

Source: Bloomberg

Instead, less than a year after Tsai took office, Taiwan's Taiex stock index closed Thursday above 10,000 points. Not only is that a psychological level, it's higher than at any point during Ma's eight years. Led by the bedrock electronics industry, every group in the 873-member market-cap-weighted index has posted gains in U.S. dollar terms since May 20.

All Rise

Even Taiwan's tourism stocks climbed since Tsai Ing-wen took office

Source: Bloomberg

Note: Returns in U.S. dollars.

Taiwan Semiconductor Manufacturing Co. and Hon Hai Precision Industry Co. between them account for a quarter of the Taiex, are heavily dependent on Apple Inc. and the global smartphone market, and have provided stellar returns in the past year.

Presidential Pick

Taiwan stocks suffered in the global financial crisis during Ma's first year, despite a warming of relations with China

An investor who put greenbacks in Taiwan the day before Tsai took office would have been rewarded with a 40 percent return, six times the payoff from an investment in China's benchmark CSI300, and even topping the 31 percent gain in Hong Kong's Hang Seng. The differential is wider still when you look at total return, including dividends.

Greater China

Taiwan outperformed both China and Hong Kong

Source: Bloomberg

Note: Returns in U.S. dollars.

The one industry that had been expected to suffer most from China's economic hostility, tourism, reversed earlier losses to post a 12 percent return since Tsai's inauguration. That's above the 7.2 percent from a collection of 12 Chinese tourism companies.

Past returns are no guarantee of future performance, and Premier Lin Chuan acknowledged in a Bloomberg News interview last week that the country needs greater innovation and more TSMCs to reinvigorate the economy. He said he's working on ways to attract the talent required to develop them. That won't happen quickly, but it's part of the administration's plan to reduce reliance on China and lean more heavily on other countries, including those in Southeast Asia.

It might be unrealistic to expect Taiwan stocks to repeat the past year's performance, but Tsai's honeymoon may have legs yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Paul Sillitoe at psillitoe@bloomberg.net

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