The Little Market That Could
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.
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.
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.
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.
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.
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